Systemic Risk Components in a Network Model of Contagion

24 Pages Posted: 16 Dec 2010 Last revised: 2 Feb 2012

See all articles by Jeremy C. Staum

Jeremy C. Staum

Northwestern University - Department of Industrial Engineering and Management Sciences

Ming Liu

Magnetar Capital

Date Written: January 29, 2012

Abstract

We show how to do systemic risk attribution in a network model of contagion with interlocking balance sheets, using the Shapley and Aumann-Shapley values. As a preliminary, we extend portfolio risk attribution to risk attribution for a single firm with a balance sheet. Along the way, we establish new results on sensitivity analysis of the Eisenberg-Noe network model of contagion, featuring a Markov-chain interpretation. We illustrate the design process for systemic risk attribution methods by developing several of them.

Keywords: systemic risk, risk components, risk attribution, risk allocation, cost allocation, contagion

Suggested Citation

Staum, Jeremy C. and Liu, Ming, Systemic Risk Components in a Network Model of Contagion (January 29, 2012). Available at SSRN: https://ssrn.com/abstract=1726107 or http://dx.doi.org/10.2139/ssrn.1726107

Jeremy C. Staum (Contact Author)

Northwestern University - Department of Industrial Engineering and Management Sciences ( email )

Evanston, IL 60208-3119
United States

Ming Liu

Magnetar Capital ( email )

1603 Orrington Ave
Evanston, IL 60201
United States

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