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On the influence of network structure on the resilience and losses of financial systems

Author

Listed:
  • Lorenzo Zino

    (Politecnico di Torino, Italy)

  • Giulia Fracastoro

    (Politecnico di Torino, Italy)

  • Anton V. Proskurnikov

    (Politecnico di Torino, Italy)

  • Giuseppe Carlo Calafiore

    (Politecnico di Torino, Italy)

Abstract

We investigate resilience to defaults in financial networks, where nodes hold shares in a common set of external assets. Price fluctuations in these assets can trigger shareholder defaults, propagating through the network and causing default cascades. In particular, we conduct a series of numerical experiments to elucidate the influence of the network structure on the financial system. Our investigation explores the effects of sparsity versus connectivity, clustering, and liability heterogeneity among financial institutions. We also examine the impact of diversification and asset investment heterogeneity.

Suggested Citation

  • Lorenzo Zino & Giulia Fracastoro & Anton V. Proskurnikov & Giuseppe Carlo Calafiore, 2025. "On the influence of network structure on the resilience and losses of financial systems," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 10(1), pages 97-122, December.
    • Handle: RePEc:jmi:articl:jmi-v10i1a4
    DOI: 10.22574/jmid.2025.12.004
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    References listed on IDEAS

    as
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    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G01 - Financial Economics - - General - - - Financial Crises

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