On Global Stability of Financial Networks
AbstractThe recent financial crisis have generated renewed interests in fragilities of global financial networks among economists and regulatory authorities. In particular, a potential vulnerability of the financial networks is the "financial contagion" process in which insolvencies of individual entities propagate through the "web of dependencies" to affect the entire system. In this paper, we formalize an extension of a financial network model originally proposed by Nier et al. for scenarios such as the OTC derivatives market, define a suitable global stability measure for this model, and perform a comprehensive empirical evaluation of this stability measure over more than 700,000 combinations of networks types and parameter combinations. Based on our evaluations, we discover many interesting implications of our evaluations of this stability measure, and derive topological properties and parameters combinations that may be used to flag the network as a possible fragile network. An interactive software FIN-STAB for computing the stability is available from the website www2.cs.uic.edu/~dasgupta/financial-simulator-files
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1208.3789.
Date of creation: Aug 2012
Date of revision: Aug 2014
Publication status: Published in Journal of Complex Networks, 2(3), 313-354, 2014
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-BAN-2012-09-03 (Banking)
- NEP-NET-2012-09-03 (Network Economics)
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