Study the financial contagion example based on Elliott, Golub and Jackson (2014). Suppose we ha 4 organizations, and their cross holding network is C = og, where the adjacency matrix g is depicted below. c is the cross holding constant in this economy. The larger the c, the more integrated this economy. Organization i holds share of another organization in the amount of Cu > 0, so an edge from 2 to 1 means' organization 2 owns fraction of organization 1. We will compte the market value of the organizations, and how does the disruption of cash flow propagate through the network and causes bankruptcy. Suppose that an organization becomes bankrupt if its market value v = Ap falls below 6 = 0.75. (23 points) 2 4 3 - / 80 pts X title) title) v. 5 btitle) ) Write out the adjacency matrix g. (1 points) b) For c=0.1 (10 points) i. Write out the matrix C = cg. (1 points) ii. Let i = 1 - E, C be the fraction of organization i privately held. Write out the matrix C. (3 points) iii. Compute A = C(I-C)-1 Write out A (Round to 2 decimal points). (Hint: You can F compute the inverse of a matrix using the "solve" function in R.) (2 points) iv. Suppose that a disruption of cash flow happens to one organization in the network (ie, its Orga cash flow drops to 0), while the cash flow of the other organizations remain at 1. Which sh flow organizations become bankrupt, if this disruption happens to each organization in turn? sh flow or Fill in the table below. (4 points) b title) o title) btitle) N2 2.1 (no title) C= 0.1 Organizations that fail Cash flow of 1 gets disrupted Cash flow of 2 gets disrupted Cash flow of 3 gets disrupted Cash flow of 4 gets disrupted C Please upload a pdf or an image file. No files uploaded Q6.2 12 Points (c) Repeat part (b) above for c = 0.2 (10 points) (d) What do you observe? (2 point) Please upload a pdf or an image file. No files uploaded Study the financial contagion example based on Elliott, Golub and Jackson (2014). Suppose we ha 4 organizations, and their cross holding network is C = og, where the adjacency matrix g is depicted below. c is the cross holding constant in this economy. The larger the c, the more integrated this economy. Organization i holds share of another organization in the amount of Cu > 0, so an edge from 2 to 1 means' organization 2 owns fraction of organization 1. We will compte the market value of the organizations, and how does the disruption of cash flow propagate through the network and causes bankruptcy. Suppose that an organization becomes bankrupt if its market value v = Ap falls below 6 = 0.75. (23 points) 2 4 3 - / 80 pts X title) title) v. 5 btitle) ) Write out the adjacency matrix g. (1 points) b) For c=0.1 (10 points) i. Write out the matrix C = cg. (1 points) ii. Let i = 1 - E, C be the fraction of organization i privately held. Write out the matrix C. (3 points) iii. Compute A = C(I-C)-1 Write out A (Round to 2 decimal points). (Hint: You can F compute the inverse of a matrix using the "solve" function in R.) (2 points) iv. Suppose that a disruption of cash flow happens to one organization in the network (ie, its Orga cash flow drops to 0), while the cash flow of the other organizations remain at 1. Which sh flow organizations become bankrupt, if this disruption happens to each organization in turn? sh flow or Fill in the table below. (4 points) b title) o title) btitle) N2 2.1 (no title) C= 0.1 Organizations that fail Cash flow of 1 gets disrupted Cash flow of 2 gets disrupted Cash flow of 3 gets disrupted Cash flow of 4 gets disrupted C Please upload a pdf or an image file. No files uploaded Q6.2 12 Points (c) Repeat part (b) above for c = 0.2 (10 points) (d) What do you observe? (2 point) Please upload a pdf or an image file. No files uploaded