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

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Abstract

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
Schools and Departments:	School of Business, Management and Economics > Business and Management
Subjects:	H Social Sciences > HG Finance
Related URLs:	https://www.tandfonline.com/doi/full/10....
Depositing User:	Tahir Beydola
Date Deposited:	05 Apr 2018 14:57
Last Modified:	05 Apr 2018 14:57
URI:	http://srodev.sussex.ac.uk/id/eprint/74852

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