2019/12/18 by Zachary Feinstein, Feinstein, Zachary, Andreas Søjmark +1
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Credit Risk and Financial Regulations #FOS: Economics and business #Mathematical Finance (q-fin.MF) #Risk Management (q-fin.RM) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1912.08695
openalex publication_date 2019/12/18 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in a network of financial institutions. The main result is to demonstrate a mean field interaction that can be found as the limit of the finite bank system generated from a finite Eisenberg-Noe style network. In this way, we connect two previously disparate frameworks for systemic risk, and in turn we provide a bridge for exploiting recent advances in mean field analysis when modelling systemic risk. The mean field limit is shown to be well-posed and is identified as a certain conditional McKean-Vlasov type problem that respects the original network topology under suitable assumptions.