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Contagion at the Interbank Market with Stochastic LGD (Memmel C., Sachs A., Stein I.)

Contagion in Banking Interbank Markets

Abstract This paper investigates contagion at the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with data about interbank exposures. We find that the frequency distribution of the LGD is u-shaped. Under the assumption of a stochastic LGD, simulation results show a more fragile banking system than under the assumption of a constant LGD. There are three types of banks concerning their tendency to trigger contagion: banks with strongly varying impact, banks whose impact is relatively constant, and banks with no direct impact.
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Libref/ Memmel C., Sachs A., Stein I. (2011) "Contagion at the Interbank Market with Stochastic LGD", Deutsche Bundesbank Research Centre Discussion Paper Series 2: Banking and Financial Studies No. 06/2011, pp. 1 - 44
© Программирование — Александр Красильников, 2008
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