|
How can granular or contract-level data tell us anything about system-level risk? |
E-mail |
|
The solvency of a financial entity depends, in part, on assets that are guaranteed by other financial entities (counterparties). Understanding how financial entities are connected contractually is critical to understanding how failures can cascade through the financial network. Aggregation and netting are based on assumptions that vary from market participant to market participant, assumptions that do not always hold in practice and that are especially vulnerable to failure during a crisis.
|