Systemic risk in a mean-field model of interbank lending with self-exciting shocks. (2nd September 2018)

• Record Type: Journal Article
• Authors: Borovykh, Anastasia; Pascucci, Andrea; La Rovere, Stefano
• Is Part Of: IISE transactions. Volume 50:Number 9(2018)
• Page Start: 806
• Page End: 819
• Publication Date: 2018-09-02
• Subjects: Systemic risk -- Hawkes process -- interacting jump diffusion -- interbank lending -- weak convergence; Industrial engineering -- Periodicals; Systems engineering -- Periodicals; Industrial engineering; Systems engineering; Electronic journals; Periodicals; 670.285
• DOI: 10.1080/24725854.2018.1448491
• Languages: English
• ISSNs: 2472-5854

Abstract

ABSTRACT: In this article we consider a mean-field model of interacting diffusions for the monetary reserves in which the reserves are subjected to a self- and cross-exciting shock. This is motivated by the financial acceleration and fire sales observed in the market. We derive a mean-field limit using a weak convergence analysis and find an explicit measure-valued process associated with a large interbanking system. We define systemic risk indicators and derive, using the limiting process, several law of large numbers results and verify these numerically. We conclude that self-exciting shocks increase the systemic risk in the network and their presence in interbank networks should not be ignored.