%0 Journal Article
%T Systemic risk through contagion in a core-periphery structured banking network
%A Oliver Kley
%A Claudia Kl¨ąppelberg
%A Lukas Reichel
%J Quantitative Finance
%D 2014
%I arXiv
%X We contribute to the understanding of how systemic risk arises in a network of credit-interlinked agents. Motivated by empirical studies we formulate a network model which, despite its simplicity, depicts the nature of interbank markets better than a homogeneous model. The components of a vector Ornstein-Uhlenbeck process living on the vertices of the network describe the financial robustnesses of the agents. For this system, we prove a LLN for growing network size leading to a propagation of chaos result. We state properties, which arise from such a structure, and examine the effect of inhomogeneity on several risk management issues and the possibility of contagion.
%U http://arxiv.org/abs/1406.6575v1