Topic: Financial Network and Systemic Risk - A Dynamic Model
Speaker: Tan Wang, Professor of Finance, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University
Date: October 12th (Wednesday.)
Time: 2:30-4:00pm
Location: Building 4, Room 101
Language: English
Abstract:
We develop a dynamic model of banking network to study the systemic risk of a financial system arising from its network interconnections. We build on Eisenberg and Noe (2001). The dynamic model developed allows us to study the dynamics of bank defaults. In contrast to the literature, we show that while the possibility of contagion is determined by interconnectedness of the financial network, whether a financial crisis can occur depends on the capital of the banks in the system. We derive an index that forecasts the occurrence of a financial crisis. We then provide an intuitive measure of systemic risk. To illustrate the potential usefulness of our model, we provide an analysis of the system of twenty two German banks. We show how many of the banks are fundamentally weak, where the contagion effect may arise from, how strong the contagion effect is, and how significant the systemic risk is.
About the speaker:
Tan Wang is currently Professor of Finance and Deputy Dean for faculty and research at Shanghai Advanced Institute of Finance in Shanghai Jiao Tong University. Prior to joining SAIF, he was a Peter Lusztig Professor of Finance at University of British Columbia from 2005 to 2014, a visiting scholar at International Monetary Fund in 2005, and Federal Reserve Bank of Cleveland in 2003. He received his Ph.D. in Economics from University of Toronto in 1992. Professor Wang’s research interests are in the areas of asset pricing, decision making under risk and uncertainty, systemic risk in banking, investment and risk management. He has published extensively in leading finance journals including Review of Financial Studies, Journal of Finance, Management Science, Journal of Economic Theory, Mathematical Finance and Econometrica etc. Most notably, Professor Wang’s research paper, “Privatization and Risk Sharing: Evidence from the Split Share Structure Reform in China”, published in The Review of Financial Studies has just recently been awarded Sun Yefang Financial Innovation Awards.
