Define “Contagion Risk” in the Financial System.
Contagion risk is the danger that a shock (e.g. a default or liquidity crisis) to one financial institution, market, or asset class will spread rapidly to others, causing a chain reaction of failures or crises. This is typically due to high interconnectedness through counterparty exposures, shared collateral, or common funding sources, leading to a systemic event.
Glossar
Contagion
Cascade ⎊ Contagion in cryptocurrency, options, and derivatives manifests as systemic risk transmission, originating from localized solvency events and propagating through interconnected positions.
Contagion Risk
Exposure ⎊ Contagion risk within cryptocurrency, options, and derivatives manifests as interconnectedness of positions and counterparties, amplifying initial shocks.