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Multichannel contagion and systemic stabilisation strategies in interconnected financial markets

Sergueiva, Antoaneta; Chinthalapati, V. L. Raju; Verousis, Thanos and Chen, Louisa. 2017. Multichannel contagion and systemic stabilisation strategies in interconnected financial markets. Quantitative Finance, 17(12), pp. 1885-1904. ISSN 1469-7688 [Article]

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Abstract or Description

To date, existing studies that use multilayer networks, in their multiplex form, to analyse the structure of financial systems, have (i) considered the structure as a non-interconnected multiplex network, (ii) no mechanism of multichannel contagion has been modelled and empirically evaluated and (iii) no multichannel stabilisation strategies for pre-emptive contagion containment have been designed. This paper formulates an interconnected multiplex structure, and a contagion mechanism among financial institutions due to bilateral exposures arising from institutions’ activity within different interconnected markets that compose the overall financial market. We design minimum-cost stabilisation strategies that act simultaneously on different markets and their interconnections, in order to effectively contain potential contagion progressing through the overall structure. The empirical simulations confirm their capability for containing contagion. The potential for multichannel contagion through the multiplex contributes more to systemic fragility than single-channel contagion, however, multichannel stabilisation also contributes more to systemic resilience than single-channel stabilisation.

Item Type:

Article

Identification Number (DOI):

https://doi.org/10.1080/14697688.2017.1357973

Additional Information:

JEL classification: C02, C63, G15, G17. G28

This work was supported by the Royal Academy of Engineering (RAE) [grant number ISS1415\7\65].

Keywords:

Multichannel contagion mechanism, Multiple-market stabilisation strategies, Interconnected multiplex, Systemic risk, Systemic resilience

Departments, Centres and Research Units:

Computing

Dates:

DateEvent
31 January 2016Submitted
30 June 2017Accepted
20 September 2017Published

Item ID:

27286

Date Deposited:

25 Oct 2019 13:21

Last Modified:

26 Oct 2019 09:51

Peer Reviewed:

Yes, this version has been peer-reviewed.

URI:

http://research.gold.ac.uk/id/eprint/27286

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