Contagion in financial networks
Abstract
This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.
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The fractional threshold model measures the fraction of non-failed neighbors of a node's initial degree, and a node's failure depends on this fractional threshold.
“Another approach, called fractional threshold, is more relevant to settings such as opinion formation, infrastructures and financial and economic settings, measures the fraction of non-failed (or activated in the context of opinion spreading) neighbors of a node’s initial degree. The decision regarding whether or not the node will fail depends on the fractional threshold11,29–31.”
From Mitigation of cascading failures in complex networks (2020) · cites this paper as [30]
Cites
Error and attack tolerance of complex networks
Albert, R., Jeong, H., & Barabási, A.-L. (2000) · Nature · doi:10.1038/35019019 · Cited by 7,534 · see citing works
May, R. M., Levin, S. A., & Sugihara, G. (2008) · Nature · doi:10.1038/451893a · Cited by 797 · cited 1× · see citing works
“Speci cally, for our purposes, it generates all the moments of the degree distribution of only those banks that are vulnerable.”
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The structure and dynamics of multilayer networks
Boccaletti, S., Bianconi, G., Criado, R., del Genio, C. I., Gómez-Gardeñes, J., Romance, M., Sendiña-Nadal, I., Wang, Z., & Zanin, M. (2014) · Physics Reports · doi:10.1016/j.physrep.2014.07.001 · Cited by 3,125 · see citing works
Systemic risk in banking ecosystems
Haldane, A. G., & May, R. M. (2011) · Nature · doi:10.1038/nature09659 · Cited by 1,480 · see citing works
The emergence of global systemic risk
Centeno, M. A., Nag, M., Patterson, T. S., Shaver, A., & Windawi, A. J. (2015) · Annual Review of Sociology · doi:10.1146/annurev-soc-073014-112317 · Cited by 240 · see citing works
Mitigation of cascading failures in complex networks
Smolyak, A., Levy, O., Vodenska, I., Buldyrev, S., & Havlin, S. (2020) · Scientific Reports · doi:10.1038/s41598-020-72771-4 · Cited by 67 · see citing works
- Authors
- Gai, P., & Kapadia, S.
- Affiliations
- Crawford School of Economics and Government, Australian National University, Canberra, ACT 0200, Australia
- Bank of England, Threadneedle Street, London EC2R 8AH, UK
- Venue
- Proceedings of the Royal Society A: Mathematical, Physical and Engineering Sciences
- Publisher
- The Royal Society
- Published
- 2010-03-24
- Volume
- 466
- Issue
- 2120
- Pages
- 2401-2423
- ISSN
- 1364-5021
- 1471-2946
- Cited by
- 859
- References
- 2
- Language
- en
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