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Contagion Analysis in the Banking Sector

37 Pages Posted: 19 Jun 2014  

Serge Darolles

Université Paris Dauphine - DRM-CEREG

Simon Dubecq

affiliation not provided to SSRN

Christian Gourieroux

University of Toronto - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE); National Bureau of Economic Research (NBER)

Date Written: June 17, 2014

Abstract

This paper analyses how an external adverse shock will impact the financial situations of banks and insurance companies and how it will diffuse among these companies. In particular we explain how to disentangle the direct and indirect (contagion) effects of such a shock, how to exhibit the contagion network and how to detect the "superspreaders", i.e. the most important firms involved in the contagion process. This method is applied to a network of 8 large European banks in order to analyze whether the revealed interconnections within these banks differ depending on the underlying measure of banks’ financial positions, namely their market capitalization, the price of the CDS contract written on their default and their book value.

Keywords: Contagion, Systemic Risk, Default Dependence, Credit Default Swaps, Canonical Correlation

JEL Classification: C32, C33, G21

Suggested Citation

Darolles, Serge and Dubecq, Simon and Gourieroux, Christian, Contagion Analysis in the Banking Sector (June 17, 2014). Available at SSRN: https://ssrn.com/abstract=2455826 or http://dx.doi.org/10.2139/ssrn.2455826

Serge Darolles (Contact Author)

Université Paris Dauphine - DRM-CEREG ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

Simon Dubecq

affiliation not provided to SSRN

Christian Gourieroux

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4349 (Phone)
416-978-6713 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE) ( email )

15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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