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Dynamic Systemic Risk Networks: A Note

38 Pages Posted: 8 Feb 2017 Last revised: 28 May 2017

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Seoyoung Kim

Santa Clara University

Daniel N Ostrov

Santa Clara University

Date Written: May 26, 2017

Abstract

We propose a theory-driven framework for monitoring system-wide risk. Our approach extends the one-firm Merton (1974) credit risk model to a generalized stochastic network-based framework across all financial institutions, comprising a novel approach to measuring systemic risk over time. We develop four desired properties for any systemic risk measure. We also develop measures for the risks created by each individual institution and a measure for risk created by each pairwise connection between institutions. Four specific implementation models are then explored, and brief empirical examples illustrate the ease of implementation of these four models and show general consistency between their results.

Keywords: systemic risk, networks, stochastic dynamics

Suggested Citation

Das, Sanjiv Ranjan and Kim, Seoyoung and Ostrov, Daniel N, Dynamic Systemic Risk Networks: A Note (May 26, 2017). Available at SSRN: https://ssrn.com/abstract=2913330

Sanjiv Ranjan Das (Contact Author)

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://algo.scu.edu/~sanjivdas/

Seoyoung Kim

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Daniel N Ostrov

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
4085544551 (Phone)
4085544551 (Fax)

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