Financial Contagion on Power Law Networks

5 Pages Posted: 30 Jan 2011

See all articles by Xi Chen

Xi Chen

affiliation not provided to SSRN

Archis Ghate

University of Washington; Independent

Date Written: January 29, 2011

Abstract

We use networks with power law degree distributions to build stylistic models of interbank financial interactions, and employ computer simulations to study progression of financial contagion through these networks. We find that power law networks are more resilient than Erdos-Renyi networks to random financial shocks. Power law networks are more vulnerable to targeted shocks than to random shocks. We also study the effect of average node degree, interbank asset ratio, and capital buffer ratio on the extent of financial contagion.

Keywords: Financial Contagion, Complex Networks

JEL Classification: C15, C52

Suggested Citation

Chen, Xi and Ghate, Archis and Ghate, Archis, Financial Contagion on Power Law Networks (January 29, 2011). Available at SSRN: https://ssrn.com/abstract=1751143 or http://dx.doi.org/10.2139/ssrn.1751143

Xi Chen

affiliation not provided to SSRN ( email )

Archis Ghate (Contact Author)

University of Washington ( email )

Seattle, WA
United States

Independent ( email )

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