Application of SIR Model on Bank Risk Contagion

Abstract

SIR model has been widely used in epidemiology and started to be used in various fields. This paper analyzes the risk contagion in banking system using a variation of SIR model. The differential equations based on the constructed model represent the dynamics of the risk contagion. The disease-free equilibrium and basic reproduction number, , is calculated in order to further analyze the model. The results show that the bank risk contagion needs to be considered both partially and systemically.