Financial Networks and Contagion

We study cascades of failures in a network of interdependent financial organizations: how discontinuous changes in asset values (e.g., defaults and shutdowns) trigger further failures, and how this depends on network structure. Integration (greater dependence on counterparties) and diversification (more counterparties per organization) have different, nonmonotonic effects on the extent of cascades. Diversification connects the network initially, permitting cascades to travel; but as it increases further, organizations are better insured against one another's failures. Integration also faces trade-offs: increased dependence on other organizations versus less sensitivity to own investments. Finally, we illustrate the model with data on European debt cross-holdings. (JEL D85, F15, F34, F36, F65, G15, G32, G33, G38)

Download Full-text

Mitigation of cascading failures in complex networks

Scientific Reports ◽

10.1038/s41598-020-72771-4 ◽

2020 ◽

Vol 10 (1) ◽

Author(s):

Alex Smolyak ◽

Orr Levy ◽

Irena Vodenska ◽

Sergey Buldyrev ◽

Shlomo Havlin

Keyword(s):

Complex Networks ◽

Network Structure ◽

Failure Mechanisms ◽

Local Network ◽

Financial Networks ◽

Cascading Failures ◽

Real Network ◽

Critical Nodes ◽

System Collapse ◽

Mitigation Techniques

Abstract Cascading failures in many systems such as infrastructures or financial networks can lead to catastrophic system collapse. We develop here an intuitive, powerful and simple-to-implement approach for mitigation of cascading failures on complex networks based on local network structure. We offer an algorithm to select critical nodes, the protection of which ensures better survival of the network. We demonstrate the strength of our approach compared to various standard mitigation techniques. We show the efficacy of our method on various network structures and failure mechanisms, and finally demonstrate its merit on an example of a real network of financial holdings.

Download Full-text

Contagion in Financial Networks

Journal of Economic Literature ◽

10.1257/jel.20151228 ◽

2016 ◽

Vol 54 (3) ◽

pp. 779-831 ◽

Cited By ~ 140

Author(s):

Paul Glasserman ◽

H. Peyton Young

Keyword(s):

Financial Crisis ◽

Network Structure ◽

Financial System ◽

Future Research ◽

Financial Networks ◽

Extensive Literature ◽

Short Term ◽

Key Variables ◽

Recent Financial Crisis ◽

New Research

The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research. (JEL D85, E44, G01, G21, G22, G23, G28)

Download Full-text

Ego-Centered Cognitive Social Structures of Close Personal Networks in the United States

10.31235/osf.io/pg3yx ◽

2017 ◽

Cited By ~ 1

Author(s):

Christopher Steven Marcum ◽

Jeffrey Lienert ◽

Megan Goldring ◽

Jielu Lin ◽

Alicia Miggins ◽

...

Keyword(s):

Network Structure ◽

The United States ◽

Cognitive Networks ◽

Social Structures ◽

Personal Networks ◽

Social Worlds ◽

Mental Maps ◽

Trade Offs ◽

The Social ◽

Underlying Network

Social network analysis is increasingly important in the social and behavioral sciences and has been employed to study a host of inter- and intra-personal social processes. One of the challenges researchers face in this area, however, is balancing the trade-offs between different modes of network measurement and study design. At one end of the spectrum, entirely ego-centered network designs facilitate access to a large, generalizable sample of the population but often lack details on the underlying network structure that embed each respondent. At the other end, whole-network designs offer fine details about the network structure but are costly and suffer from generalizability limitations. In this paper, we employ an ego-centered network sampling design that strikes a balance between these two cases by leveraging how individuals perceive their social worlds vis-a-vis respondent reports of their alter-alter ties. We describe a large sample of close personal networks where respondents informed on their perceptions of the ties between their alters on multiple types of relations. Specifically, we characterize the distribution of network statistics (size, density, and multiplexity) for over a thousand individual ego-centered cognitive networks drawn from a representative sample of the U.S. population. To our knowledge this is the first study to characterize the distribution of mental maps vis-a-vis perceived alter-alter relationships in this large of a sample of respondents involved in close personal networks. In doing so, we more clearly shed light on how Americans perceive the structure of their social worlds and provide an empirical case study in what we characterize as ego-centered cognitive social structures.

Download Full-text

Contagion in financial networks

Proceedings of The Royal Society A Mathematical Physical and Engineering Sciences ◽

10.1098/rspa.2009.0410 ◽

2010 ◽

Vol 466 (2120) ◽

pp. 2401-2423 ◽

Cited By ~ 534

Author(s):

Prasanna Gai ◽

Sujit Kapadia

Keyword(s):

Analytical Model ◽

Network Structure ◽

Market Liquidity ◽

Asset Market ◽

Financial Networks ◽

Financial Systems ◽

Arbitrary Structure ◽

Idiosyncratic Shocks ◽

Potential Impact ◽

Robust Yet Fragile

This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.

Download Full-text

FINANCIAL CONTAGION IN LARGE, INHOMOGENEOUS STOCHASTIC INTERBANK NETWORKS

Advances in Complex Systems ◽

10.1142/s0219525919500024 ◽

2019 ◽

Vol 22 (02) ◽

pp. 1950002 ◽

Cited By ~ 1

Author(s):

NADINE WALTERS ◽

GUSTI VAN ZYL ◽

CONRAD BEYERS

Keyword(s):

Network Structure ◽

Systemic Risk ◽

Stochastic Networks ◽

Financial Networks ◽

Financial Contagion ◽

Lending Relationships ◽

Risk Research ◽

Initial Shock ◽

Interbank Lending ◽

Lending Behavior

We consider the fraction of nodes that default in large, stochastic, inhomogeneous financial networks following an initial shock to the system. Results for deterministic sequences of networks are generalized to stochastic networks to account for interbank lending relationships that change frequently. A general class of inhomogeneous stochastic networks is proposed for use in systemic risk research, and we illustrate how results that hold for Erdős–Rényi networks can be generalized to the proposed network class. The network structure of a system is determined by interbank lending behavior which may vary according to the relative sizes of the banks. We then use the results of the paper to illustrate how network structure influences the systemic risk inherent in large banking systems.

Download Full-text

Novel players fine-tune plant trade-offs

Essays in Biochemistry ◽

10.1042/bse0580083 ◽

2015 ◽

Vol 58 ◽

pp. 83-100 ◽

Cited By ~ 25

Author(s):

Selena Gimenez-Ibanez ◽

Marta Boter ◽

Roberto Solano

Keyword(s):

Ubiquitin Ligase ◽

Feedback Loop ◽

Molecular Level ◽

26S Proteasome ◽

Signalling Molecules ◽

Transcriptional Reprogramming ◽

Trade Offs ◽

Jaz Proteins ◽

Regulatory Feedback Loop ◽

Fine Tune

Jasmonates (JAs) are essential signalling molecules that co-ordinate the plant response to biotic and abiotic challenges, as well as co-ordinating several developmental processes. Huge progress has been made over the last decade in understanding the components and mechanisms that govern JA perception and signalling. The bioactive form of the hormone, (+)-7-iso-jasmonyl-l-isoleucine (JA-Ile), is perceived by the COI1–JAZ co-receptor complex. JASMONATE ZIM DOMAIN (JAZ) proteins also act as direct repressors of transcriptional activators such as MYC2. In the emerging picture of JA-Ile perception and signalling, COI1 operates as an E3 ubiquitin ligase that upon binding of JA-Ile targets JAZ repressors for degradation by the 26S proteasome, thereby derepressing transcription factors such as MYC2, which in turn activate JA-Ile-dependent transcriptional reprogramming. It is noteworthy that MYCs and different spliced variants of the JAZ proteins are involved in a negative regulatory feedback loop, which suggests a model that rapidly turns the transcriptional JA-Ile responses on and off and thereby avoids a detrimental overactivation of the pathway. This chapter highlights the most recent advances in our understanding of JA-Ile signalling, focusing on the latest repertoire of new targets of JAZ proteins to control different sets of JA-Ile-mediated responses, novel mechanisms of negative regulation of JA-Ile signalling, and hormonal cross-talk at the molecular level that ultimately determines plant adaptability and survival.

Download Full-text

Dual Goals for Speed and Accuracy on the Same Performance Task

Journal of Personnel Psychology ◽

10.1027/1866-5888/a000063 ◽

2012 ◽

Vol 11 (3) ◽

pp. 118-126 ◽

Cited By ~ 3

Author(s):

Olive Emil Wetter ◽

Jürgen Wegge ◽

Klaus Jonas ◽

Klaus-Helmut Schmidt

Keyword(s):

Memory Scanning ◽

Performance Task ◽

Performance Tasks ◽

Trade Off ◽

Test Experiment ◽

Trade Offs ◽

New Finding ◽

Sternberg Paradigm ◽

Speed Accuracy ◽

Speed And Accuracy

In most work contexts, several performance goals coexist, and conflicts between them and trade-offs can occur. Our paper is the first to contrast a dual goal for speed and accuracy with a single goal for speed on the same task. The Sternberg paradigm (Experiment 1, n = 57) and the d2 test (Experiment 2, n = 19) were used as performance tasks. Speed measures and errors revealed in both experiments that dual as well as single goals increase performance by enhancing memory scanning. However, the single speed goal triggered a speed-accuracy trade-off, favoring speed over accuracy, whereas this was not the case with the dual goal. In difficult trials, dual goals slowed down scanning processes again so that errors could be prevented. This new finding is particularly relevant for security domains, where both aspects have to be managed simultaneously.

Download Full-text