Banking Systems Simulation by Zedda Stefano

Author:Zedda, Stefano
Language: eng
Format: epub
ISBN: 9781119195894
Publisher: John Wiley & Sons, Inc.
Published: 2017-05-22T00:00:00+00:00

or all the diagonal elements of the matrix are zero:

(2.34)

If no more information is available on the interbank exposure, we now have to find some rule for estimating the exposure of each bank to each of the others, and fill the IB matrix with it.

The most common hypothesis is that banks tend to diversify risk sources, so to spread exposures on all possible counterparts, also known as the maximum entropy hypothesis.

Some studies analyzed the actuality and the impact of this hypothesis on contagion estimation, such as Mistrulli (2010) and Zedda et al. (2012a). Another interesting robustness test is developed in Hałaj and Kok (2013), which, in considering the high volatility of the interbank exposures, verified whether variations in the interbank exposures induce important variations in results or whether the estimations are substantially stable.

Their approach and results are presented in the next section.

In this framework, it must be that summing up row totals (interbank credits) or summing up column totals (interbank debts) yields the same result:

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