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SUMMARY:Filling in the Blanks: Network Structure and Interbank Contagion -
  von Peter\, G (Bank for International Settlements)
DTSTART:20140922T153000Z
DTEND:20140922T161500Z
UID:TALK54413@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-authors : Kartik Anand (Bank of Canada)\, Ben Craig (Federa
 l Reserve)\n\nThe network pattern of financial linkages is important in ma
 ny areas of banking and finance. Yet bilateral linkages are often unobserv
 ed\, and maximum entropy serves as the leading method for estimating count
 erparty exposures. This paper proposes an efficient alternative that combi
 nes information-theoretic arguments with economic incentives to produce mo
 re realistic interbank networks that preserve important characteristics of
  the original interbank market. The method loads the most probable links w
 ith the largest exposures consistent with the total lending and borrowing 
 of each bank\, yielding networks with minimum density. When used in a stre
 ss-testing context\, the minimum density solution overestimates contagion\
 , whereas maximum entropy underestimates it. Using the two benchmarks side
  by side defines a useful range that bounds the cost of systemic stress pr
 esent in the true interbank network when counterparty exposures are unknow
 n.\n
LOCATION:Seminar Room 1\, Newton Institute
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