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Default Cascades in Complex Networks: Topology and Systemic Risk

Roukny, Tarik and Bersini, Hugues and Pirotte, Hugues and Caldarelli, Guido and Battiston, Stefano Default Cascades in Complex Networks: Topology and Systemic Risk. Scientific Reports, 3 (2759). pp. 1-8. ISSN 2045-2322 (2013)

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The recent crisis has brought to the fore a crucial question that remains still open: what would be the optimal architecture of financial systems? We investigate the stability of several benchmark topologies in a simple default cascading dynamics in bank networks. We analyze the interplay of several crucial drivers, i.e., network topology, banks' capital ratios, market illiquidity, and random vs targeted shocks. We find that, in general, topology matters only – but substantially – when the market is illiquid. No single topology is always superior to others. In particular, scale-free networks can be both more robust and more fragile than homogeneous architectures. This finding has important policy implications. We also apply our methodology to a comprehensive dataset of an interbank market from 1999 to 2011.

Item Type: Article
Identification Number: 10.1038/srep02759
Projects: EC FET Open Project “FOC” Nr. 255987
Uncontrolled Keywords: Computational science, Applied physics
Subjects: Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Caterina Tangheroni
Date Deposited: 21 May 2015 10:00
Last Modified: 07 Apr 2016 09:49
URI: http://eprints.imtlucca.it/id/eprint/2698

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