Contagion model for multi-layer financial network considering heterogeneous liquid asset

The liquid asset of a financial institution consists of cash, loan, realizable stock and bond. In the research of risk contagion caused by the liquid asset, i.e. the counterparty default risk, all the liquid assets are seen as the same kind, therefore the heterogeneity of the liquid asset and its influence for the is ignored. The systemic risk assessing method for multi-layer financial network proposed in recently study could analysis heterogeneity of the settlement time of the liquid asset, however, hardly analysis the heterogeneity that some kinds of asset price may fall down with the market price (stock and bond) while the other (cash and loan) would not. In this paper, we propose a model to describe the risk contagion of the multi-layer financial network consist of different liquid asset types. Firstly, we construct a multi-layer financial network with M layer and N financial institutions, each layer represents a kind of asset and every financial institution will trade with other on each layer. Secondly, we describe two kinds of contagion in the contagion model, counterparty default risk and devaluation of the liquid asset. Finally, the difference between contagion result of the proposed heterogenous model and the homogenous model is compared through simulation. We find that the heterogeneity of the liquid asset will increase the contagion extent. The proposed model can analysis the effect of fluctuation in prices for heterogenous assets, and will further support the study of the contagion mechanism in the heterogenous financial network, and offer guidance for making a reasonable macroprudential regulation policy.