RESILIENCE TO CONTAGION IN FINANCIAL NETWORKS
Copyright policy )RESILIENCE TO CONTAGION IN FINANCIAL NETWORKS
We derive rigorous asymptotic results for the magnitude of contagion in a large counterparty network and give an analytical expression for the asymptotic fraction of defaults, in terms of network characteristics. Our results extend previous studies on contagion in random graphs to inhomogeneous‐directed graphs with a given degree sequence and arbitrary distribution of weights. We introduce a criterion for the resilience of a large financial network to the insolvency of a small group of financial institutions and quantify how contagion amplifies small shocks to the network. Our results emphasize the role played by “contagious links” and show that institutions which contribute most to network instability have both large connectivity and a large fraction of contagious links. The asymptotic results show good agreement with simulations for networks with realistic sizes.
- Sorbonne Paris Cité France
- École Polytechnique Fédérale de Lausanne EPFL Switzerland
- University of Paris France
- École Normale Supérieure Burundi
- Sorbonne University France
Economics, Social Sciences, [MATH] Mathematics [math], math.PR, 510, Finance And Investment, Business & Economics, RANDOM GRAPHS, 0102 Applied Mathematics, TOPOLOGY, Business, Interdisciplinary Applications, 1502 Banking, Finance And Investment, random graphs, Mathematical Methods, DIFFUSION, Risk Management (q-fin.RM), Physical Sciences, DEGREE SEQUENCE, Mathematical Methods In Social Sciences, Mathematics - Probability, financial stability, Quantitative Finance - Risk Management, Mathematics, Interdisciplinary Applications, 1502 Banking, 330, Random graphs (graph-theoretic aspects), default contagion, BOOTSTRAP PERCOLATION, FOS: Economics and business, SYSTEMIC RISK, macroprudential regulation, systemic risk, FOS: Mathematics, interbank network, Science & Technology, Probability (math.PR), Social Sciences, Mathematical Methods, Business, Finance, COMPONENT, MODEL, Stochastic network models in operations research, MARKET, q-fin.RM, Mathematics, Finance, Financial applications of other theories, BANKING SYSTEMS
Economics, Social Sciences, [MATH] Mathematics [math], math.PR, 510, Finance And Investment, Business & Economics, RANDOM GRAPHS, 0102 Applied Mathematics, TOPOLOGY, Business, Interdisciplinary Applications, 1502 Banking, Finance And Investment, random graphs, Mathematical Methods, DIFFUSION, Risk Management (q-fin.RM), Physical Sciences, DEGREE SEQUENCE, Mathematical Methods In Social Sciences, Mathematics - Probability, financial stability, Quantitative Finance - Risk Management, Mathematics, Interdisciplinary Applications, 1502 Banking, 330, Random graphs (graph-theoretic aspects), default contagion, BOOTSTRAP PERCOLATION, FOS: Economics and business, SYSTEMIC RISK, macroprudential regulation, systemic risk, FOS: Mathematics, interbank network, Science & Technology, Probability (math.PR), Social Sciences, Mathematical Methods, Business, Finance, COMPONENT, MODEL, Stochastic network models in operations research, MARKET, q-fin.RM, Mathematics, Finance, Financial applications of other theories, BANKING SYSTEMS
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