Publication
In this paper we study insolvency cascades in an interbank system, in which banks are permitted to insure their loans with credit default swaps (CDSs) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a CDS market can be designed to rewire the network of interbank exposures, in ways that make it more resilient to insolvency cascades. In devising a systemic insurance surcharge to be added to the CDS spread, a regulator will consider information about the topology of the interbank network. Thus, CDS contracts are effectively penalized according to how much they contribute to increasing systemic risk. CDS contracts that reduce systemic risk remain untaxed. We simulate this regulated CDS market using an agent-based model (CRISIS macro-financial model) and demonstrate that it leads to an interbank system that is more resilient to insolvency cascades.
M. V. Leduc, S. Poledna, S. Thurner, Systemic Risk Management in Financial Networks with Credit Default Swaps, Journal Of Network Theory In Finance Vol. 3, No. 3 (2017)
Related
Signup
Cookie | Duration | Description |
---|---|---|
cookielawinfo-checkbox-analytics | 1 year | Set by the GDPR Cookie Consent plugin, this cookie records the user consent for the cookies in the "Analytics" category. |
cookielawinfo-checkbox-functional | 1 year | The GDPR Cookie Consent plugin sets the cookie to record the user consent for the cookies in the category "Functional". |
cookielawinfo-checkbox-necessary | 1 year | Set by the GDPR Cookie Consent plugin, this cookie records the user consent for the cookies in the "Necessary" category. |
CookieLawInfoConsent | 1 year | CookieYes sets this cookie to record the default button state of the corresponding category and the status of CCPA. It works only in coordination with the primary cookie. |
PHPSESSID | session | This cookie is native to PHP applications. The cookie stores and identifies a user's unique session ID to manage user sessions on the website. The cookie is a session cookie and will be deleted when all the browser windows are closed. |
viewed_cookie_policy | 1 year | The GDPR Cookie Consent plugin sets the cookie to store whether or not the user has consented to use cookies. It does not store any personal data. |
Cookie | Duration | Description |
---|---|---|
mec_cart | 1 month | Provides functionality for our ticket shop |
VISITOR_INFO1_LIVE | 6 months | YouTube sets this cookie to measure bandwidth, determining whether the user gets the new or old player interface. |
VISITOR_PRIVACY_METADATA | 6 months | YouTube sets this cookie to store the user's cookie consent state for the current domain. |
YSC | session | Youtube sets this cookie to track the views of embedded videos on Youtube pages. |
yt-remote-connected-devices | never | YouTube sets this cookie to store the user's video preferences using embedded YouTube videos. |
yt-remote-device-id | never | YouTube sets this cookie to store the user's video preferences using embedded YouTube videos. |
yt.innertube::nextId | never | YouTube sets this cookie to register a unique ID to store data on what videos from YouTube the user has seen. |
yt.innertube::requests | never | YouTube sets this cookie to register a unique ID to store data on what videos from YouTube the user has seen. |
Cookie | Duration | Description |
---|---|---|
_ga | 1 year | Google Analytics sets this cookie to calculate visitor, session and campaign data and track site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognise unique visitors. |
_ga_* | 1 year | Google Analytics sets this cookie to store and count page views. |
_gat_gtag_UA_* | 1 min | Google Analytics sets this cookie to store a unique user ID. |
_gid | 1 day | Google Analytics sets this cookie to store information on how visitors use a website while also creating an analytics report of the website's performance. Some of the collected data includes the number of visitors, their source, and the pages they visit anonymously. |