@article{785042422d004207973459a6368188cc,
title = "Systemic Risk in Networks with a Central Node",
abstract = "We examine the effects on a financial network of clearing all contracts though a central node (CN), thereby transforming the original network into a star-shaped one. The CN is capitalized with external equity and a guaranty fund. We introduce a structural systemic risk measure that captures the shortfall of end users. We show that it is possible to simultaneously improve the expected surplus of the banks and the CN as well as decrease the shortfall of end users. We determine the CN's equity and guaranty fund policies as a Nash bargaining solution. We illustrate our findings on simulated credit default swap networks compatible with aggregate market data.",
keywords = "Central node, Contagion, Credit default swap markets, Financial network, Market design, Star-shaped networks, Systemic risk",
author = "Hamed Amini and Damir Filipovic and Andreea Minca",
note = "Funding Information: \ast Received by the editors May 1, 2018; accepted for publication (in revised form) November 8, 2019; published electronically February 6, 2020. This paper has been previously circulated as ``Systemic Risk and Central Clearing Counterparty Design{"}{"}. https://doi.org/10.1137/18M1184667 Funding: Andreea Minca's research on central clearing is funded by the NSF award CAREER: Optimal Design, Policies and Risk Management of Central Nodes in Financial Networks. \dagger J. Mack Robinson College of Business, Georgia State University, Atlanta, GA 30303 (hamini@gsui.edu). \ddagger Ecole Polytechnique Federale de Lausanne (EPFL) and Swiss Finance Institute, 1015 Lausanne, Switzerland (damir.filipovic@epfl.ch). \S School of Operations Research and Information Engineering, Cornell University, Ithaca, NY 14853 (acm299@ cornell.edu). Publisher Copyright: {\textcopyright} by SIAM. Unauthorized reproduction of this article is prohibited.",
year = "2020",
doi = "10.1137/18M1184667",
language = "English (US)",
volume = "11",
pages = "60--98",
journal = "SIAM Journal on Financial Mathematics",
issn = "1945-497X",
publisher = "Society for Industrial and Applied Mathematics Publications",
number = "1",
}