Asset correlation and network fragility: How should we intervene?

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• Kobayashi, T (University of Kobe)
• Wednesday 03 September 2014, 11:00-12:00
• Seminar Room 2, Newton Institute Gatehouse.

If you have a question about this talk, please contact Kathryn de Ridder.

Systemic Risk: Mathematical Modelling and Interdisciplinary Approaches

The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007–2009. Recently, Beale et al. (2011) demonstrated that higher portfolio diversity among banks would reduce systemic risk by decreasing the risk of simultaneous defaults at the expense of a higher likelihood of individual defaults. In practice, however, a bank default has an externality in that it undermines other banks’ balance sheets. In this presentation, I focus on the interplay between the interbank network and asset correlation structure. I argue that regulator’s intervention should be designed in a way that takes into account the mesoscopic features of financial markets.

This talk is part of the Isaac Newton Institute Seminar Series series.

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