Ibragimov, Rustam; Jaffee, Dwight; Walden, Johan - In: Journal of Financial Economics 99 (2011) 2, pp. 333-348
The recent financial crisis has revealed significant externalities and systemic risks that arise from the interconnectedness of financial intermediaries' risk portfolios. We develop a model in which the negative externality arises because intermediaries' actions to diversify that are optimal for...