2017/06/01 by Christoph Siebenbrunner, Siebenbrunner, Christoph
Economics, Econometrics and Finance · #FOS: Economics and business #Risk Management (q-fin.RM) #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1706.00284
arxiv created 2017/06/01 · arxiv updated 2017/06/02
I show that the solution of a standard clearing model commonly used in contagion analyses for financial systems can be expressed as a specific form of a generalized Katz centrality measure under conditions that correspond to a system-wide shock. This result provides a formal explanation for earlier empirical results which showed that Katz-type centrality measures are closely related to contagiousness. It also allows assessing the assumptions that one is making when using such centrality measures as systemic risk indicators. I conclude that these assumptions should be considered too strong and that, from a theoretical perspective, clearing models should be given preference over centrality measures in systemic risk analyses.