This paper develops a theoretical model which replicates main features of the euro overnight interbank market and the Eurosystem's operational framework, which has been in place since September 2008. Main ingredients of the model are frictions in the interbank market, a refinancing operation...

In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about...