Study of Contagion in Financial Networks

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Published: Nov 30, 2017
DOI: https://doi.org/10.31095/podium.2017.32.3
Keywords:
financial network, contagion, systematic risk, network models, financial crisis Red financiera, contagio, riesgo sistemático, modelo de redes, crisis financiera

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Valeria L. Negrete Zambrano
Universidad San Francisco de Quito
Pedro P. Romero Alemán
Universidad San Francisco de Quito

Abstract

The purpose of this article was to study the formation of financial networks and determine idiosyncratic shocks in case of contagion, based on the application of Gai and Kapadia, and Acemoglu, Ozdaglar and Tahbaz-Salehi models. The theory explained the operation of the network and how the connection of interbank assets and liabilities is defined between them. The studies concluded that the amount of loans issued by a bank should not exceed the assets it owns, because if this happens, the system will be exposed to a cascade of defaults. In addition, contagion would depend on the size of sensitive groups within the financial network, the degree of vulnerability of each bank, and how they are connected to each other.

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How to Cite
Negrete Zambrano, V. L., & Romero Alemán, P. P. (2017). Study of Contagion in Financial Networks. PODIUM, (32), 31–43. https://doi.org/10.31095/podium.2017.32.3
Issue
No. 32 (2017)
Section
Scientific articles
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Author Biographies

Valeria L. Negrete Zambrano, Universidad San Francisco de Quito

Economista, Universidad San Francisco de Quito. Colaboradora del departamento de Economía de la Universidad San Francisco de Quito-Ecuador. Email:valerianegrete94@hotmail.com. 

Pedro P. Romero Alemán, Universidad San Francisco de Quito

PhD en Economía, George Mason University.  Profesor del departamento de Economía de la Universidad San Francisco de Quito- Ecuador. Email: promero@usfq.edu.ec .

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