Propagation of balance-sheet or cash-flow insolvency across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in a large financial network and give an analytical...

We consider a stylized core-periphery financial network in which links lead to the creation of projects in the outside economy but make banks prone to contagion risk. The controller seeks to maximize, under budget constraints, the value of the financial system defined as the total amount of...

We propose a framework for testing the possibility of large cascades in financial networks. This framework accommodates a variety of specifications for the probabilities of emergence of 'contagious links', where a contagious link leads to the default of a bank following the default of its...

We consider a heterogeneous SIR epidemic model, calibrated to the current COVID-19 pandemic characteristics. We study the equilibrium of the voluntary social distancing decisions across a network of individuals subject to the epidemic risk. We quantify the absolute and relative utility gaps...

Since the onset of the financial crisis in 2007, more than 370 of the almost 8000 US banks insured by the Federal Deposit Insurance Corporation have failed. By comparison, between 2000 and 2004 there were around 30 failures and no failures occurred between 2005 and the beginning of 2007.We focus...

We examine the effects on a financial network of multilateral clearing via a central clearing counterparty (CCP) from an ex ante and ex post perspective. The CCP is capitalized with equity and a guarantee fund and it can charge a volume-based fee. We propose a CCP design which improves aggregate...

We study optimal equity infusions into a financial system represented as a hierarchical network with two classes of banks, prone to both the risk of insolvencies and the risk of runs by short term creditors. The government seeks to minimize, under budget constraints, the magnitude of the total...

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...

We introduce threshold growth in the classical threshold contagion model, or equivalently a network of Cramer-Lundberg processes in which nodes have downward jumps when there is a failure of a neighboring node. Choosing the configuration model as underlying graph, we prove fluid limits for the...

In financial derivatives networks clearinghouses have been mandated as de facto central nodes: they are buyers to the sellers of financial contracts and resellers to the ultimate buyers. Other services aim at solving various network problems such as reducing cycles. All these services face...