Stress Testing the Resilience of Financial Networks

19 Pages Posted: 25 Dec 2010 Last revised: 28 Dec 2010

See all articles by Hamed Amini

Hamed Amini

University of Florida

Rama Cont

University of Oxford

Andreea Minca

Cornell University

Date Written: September 24, 2010


We propose a framework for stress testing the resilience of a financial network to external shocks affecting balance sheets. Whereas previous studies of contagion effects in financial networks have relied on large scale simulations, our approach uses a simple analytical criterion for resilience to contagion, based on an asymptotic analysis of default cascades in heterogeneous networks.

In particular, our methodology does not require to observe the whole network but focuses on the characteristics of the network which contribute to its resilience.

Applying this framework to a sample network, we observe that the size of the default cascade generated by a macroeconomic shock across balance sheets may exhibit a sharp transition when the magnitude of the shock reaches a certain threshold: beyond this threshold, contagion spreads to a large fraction of the financial system. An upper bound is given for the threshold in terms of the characteristics of the network.

Keywords: systemic risk, banking network, stress test, counterparty risk, macro-prudential regulation, complex network, scale-free network

JEL Classification: G18, G21, G28

Suggested Citation

Amini, Hamed and Cont, Rama and Minca, Andreea, Stress Testing the Resilience of Financial Networks (September 24, 2010). Available at SSRN: or

Hamed Amini

University of Florida ( email )

University of Florida
Gainesville, FL 32611
United States

Rama Cont (Contact Author)

University of Oxford ( email )

Mathematical Institute
Oxford, OX2 6GG
United Kingdom


Andreea Minca

Cornell University ( email )

222 Rhodes Hall
Ithaca, NY NY 14853
United States


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics