eprintid: 3550
rev_number: 9
eprint_status: archive
userid: 69
dir: disk0/00/00/35/50
datestamp: 2016-10-04 10:38:55
lastmod: 2016-10-04 10:38:55
status_changed: 2016-10-04 10:38:55
type: monograph
metadata_visibility: show
creators_name: Bardoscia, Marco
creators_name: Battiston, Stefano
creators_name: Caccioli, Fabio
creators_name: Caldarelli, Guido
creators_id: 
creators_id: 
creators_id: 
creators_id: guido.caldarelli@imtlucca.it
title: Pathways towards instability in financial networks
ispublished: submitted
subjects: QC
divisions: CSA
full_text_status: public
monograph_type: working_paper
keywords: Financial networks, Systemic risk, Stability analisys, Policy making
abstract: There is growing consensus that processes of market integration and risk diversification may come at the price of more systemic risk. Indeed, financial institutions are interconnected in a network of contracts where distress can either be amplified or dampened. However, a mathematical understanding of instability in relation to the network topology is still lacking. In a model financial network, we show that the origin of instability resides in the presence of specific types of cyclical structures, regardless of many of the details of the distress propagation mechanism. In particular, we show the existence of trajectories in the space of graphs along which a complex network turns from stable to unstable, although at each point along the trajectory its nodes satisfy constraints that would apparently make them individually stable. In the financial context, our findings have important implications for policies aimed at increasing financial stability. We illustrate the propositions on a sample dataset for the top 50 EU listed banks between 2008 and 2013. More in general, our results shed light on previous findings on the instability of model ecosystems and are relevant for a broad class of dynamical processes on complex networks.
date: 2016
date_type: published
publisher: arXiv
pages: 13
id_number: arXiv:1602.05883
institution: IMT Institute for Advanced Studies Lucca
official_url: https://arxiv.org/abs/1602.05883
projects: FET Project SIMPOL (nr. 610704)
projects: FET Project DOLFINS (nr. 640772)
projects: FET IP Project MULTIPLEX (nr. 317532)
projects: EU projects SoBigData (nr. 654024)
projects: Eu project  CoeGSS (nr. 676547)
citation:   Bardoscia, Marco and Battiston, Stefano and Caccioli, Fabio and Caldarelli, Guido  Pathways towards instability in financial networks.  Working Paper   arXiv       (Submitted)   
document_url: http://eprints.imtlucca.it/3550/1/1602.05883v1.pdf