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Benefit attribution in financial systems with bilateral netting

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  • Lim, Hanah

Abstract

We develop a cooperative game model and apply the Shapley value to the game to attribute overall benefits of bilateral netting to individual financial institutions. We propose three different characteristic functions, each of which represents a different type of systemic importance. A simulation study shows that the benefit attribution of a bank is strongly related to the bank’s interbank reliance and vulnerability.

Suggested Citation

  • Lim, Hanah, 2022. "Benefit attribution in financial systems with bilateral netting," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321002518
    DOI: 10.1016/j.frl.2021.102179
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    References listed on IDEAS

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    1. Dohyun Ahn, 2020. "Shock amplification in financial networks with applications to the CCP feasibility," Quantitative Finance, Taylor & Francis Journals, vol. 20(7), pages 1045-1056, July.
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    5. Nikola Tarashev & Kostas Tsatsaronis & Claudio Borio, 2016. "Risk Attribution Using the Shapley Value: Methodology and Policy Applications," Review of Finance, European Finance Association, vol. 20(3), pages 1189-1213.
    6. Glasserman, Paul & Young, H. Peyton, 2015. "How likely is contagion in financial networks?," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 383-399.
    7. Balog, Dóra & Bátyi, Tamás László & Csóka, Péter & Pintér, Miklós, 2017. "Properties and comparison of risk capital allocation methods," European Journal of Operational Research, Elsevier, vol. 259(2), pages 614-625.
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    More about this item

    Keywords

    Benefit attribution; Bilateral netting; Financial systemic loss; Cooperative game theory; Shapley value;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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