30 Pages Posted: 8 Feb 2017
Date Written: February 3, 2017
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 connection between pairs of these institutions.
Suggested Citation: Suggested Citation
Das, Sanjiv Ranjan and Kim, Seoyoung and Ostrov, Daniel N, Dynamic Systemic Risk Networks: A Note (February 3, 2017). Available at SSRN: https://ssrn.com/abstract=2913330