Default clearing and ex-ante contagion in financial systems with a two-layer network structure
Journal article
Qi, M., Ding, Y., Chun, Y., Liu, W. and Liu, J. 2025. Default clearing and ex-ante contagion in financial systems with a two-layer network structure. Communications in Nonlinear Science and Numerical Simulation. 142 (1), p. 108515. https://doi.org/10.1016/j.cnsns.2024.108515
| Authors | Qi, M., Ding, Y., Chun, Y., Liu, W. and Liu, J. |
|---|---|
| Abstract | Systemic risks do not arise only as a result of a crisis event, and it is im portant to understand the ex-ante risk contagion mechanisms. There has been no research on ex-ante contagion valuation and contagion modelling of multilayer networks. This study derives the ex-ante-contagion mechanism of a two-layer network financial system with interbank lending connections and cross-holding connections, constructs a general valuation model of the financial system based on the Eisenberg and Noe clearing framework, and then obtains a model of ex-ante risk contagion and valuation functions. It is further verified by stress tests that bankruptcy is not a necessary condi tion for loss generation. By simulating different shock scenarios, we obtain the systemic risk and systemically important banks in China. Our models and analyses provide new research perspectives for studying risk contagion mechanisms in financial networks and provide empirical corroboration for regulators and policy makers. |
| Keywords | Two-layer networks; Risk contagion; Default clearing; Ex-ante valuation; Systematic risk |
| Year | 2025 |
| Journal | Communications in Nonlinear Science and Numerical Simulation |
| Journal citation | 142 (1), p. 108515 |
| Publisher | Elsevier |
| ISSN | 1007-5704 |
| Digital Object Identifier (DOI) | https://doi.org/10.1016/j.cnsns.2024.108515 |
| Official URL | https://www.sciencedirect.com/science/article/pii/S1007570424007007 |
| Publication dates | |
| Online | 12 Dec 2024 |
| Publication process dates | |
| Accepted | 04 Dec 2024 |
| Deposited | 21 Jan 2025 |
| Accepted author manuscript | License File Access Level Open |
| Output status | Published |
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| License: CC BY-NC-ND 4.0 | ||
| File access level: Open | ||
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