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Efficient immunization strategies to prevent financial contagion


  • Teruyoshi Kobayashi
  • Kohei Hasui


Many immunization strategies have been proposed to prevent infectious viruses from spreading through a network. In this study, we propose efficient immunization strategies to prevent a default contagion that might occur in a financial network. An essential difference from the previous studies on immunization strategy is that we take into account the possibility of serious side effects. Uniform immunization refers to a situation in which banks are "vaccinated" with a common low-risk asset. The riskiness of immunized banks will decrease significantly, but the level of systemic risk may increase due to the de-diversification effect. To overcome this side effect, we propose another immunization strategy, counteractive immunization, which prevents pairs of banks from failing simultaneously. We find that counteractive immunization can efficiently reduce systemic risk without altering the riskiness of individual banks.

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  • Teruyoshi Kobayashi & Kohei Hasui, 2013. "Efficient immunization strategies to prevent financial contagion," Papers 1308.0652,, revised Dec 2013.
  • Handle: RePEc:arx:papers:1308.0652

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    References listed on IDEAS

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    6. Teruyoshi Kobayashi, 2013. "Network versus portfolio structure in financial systems," Discussion Papers 1307, Graduate School of Economics, Kobe University.
    7. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
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    Cited by:

    1. Kobayashi, Teruyoshi, 2014. "A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades," Economics Letters, Elsevier, vol. 124(1), pages 113-116.

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