Risk Sharing and Contagion in Networks

REVIEW OF FINANCIAL STUDIES, pp. 3086.0-3127.0, 2017.

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Abstract:

We investigate the socially optimal design of financial networks, that allows to tackle the trade-off between risk sharing and contagion. We identify conditions on the shock distribution under which full integration or maximal segmentation is optimal. We also show that, under different conditions, the optimal network displays different le...More

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