1 research outputs found
Clearing algorithms and network centrality
I show that the solution of a standard clearing model commonly used in
contagion analyses for financial systems can be expressed as a specific form of
a generalized Katz centrality measure under conditions that correspond to a
system-wide shock. This result provides a formal explanation for earlier
empirical results which showed that Katz-type centrality measures are closely
related to contagiousness. It also allows assessing the assumptions that one is
making when using such centrality measures as systemic risk indicators. I
conclude that these assumptions should be considered too strong and that, from
a theoretical perspective, clearing models should be given preference over
centrality measures in systemic risk analyses