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Clearing Algorithms and Network Centrality

14 Pages Posted: 29 Apr 2017  

Christoph Siebenbrunner

University of Oxford - Mathematical Institute

Date Written: April 27, 2017

Abstract

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.

Keywords: financial networks, systemic risk, network centrality

Suggested Citation

Siebenbrunner, Christoph, Clearing Algorithms and Network Centrality (April 27, 2017). Available at SSRN: https://ssrn.com/abstract=2959680 or http://dx.doi.org/10.2139/ssrn.2959680

Christoph Siebenbrunner (Contact Author)

University of Oxford - Mathematical Institute ( email )

Andrew Wiles Building,
Radcliffe Observatory Quarter, Woodstock Rd
Oxford, OX2 6GG
United Kingdom

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