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 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 examine the effects on a financial network of clearing all contracts though a central node (CN) thereby transforming the original network into a star-shaped one. The CN is capitalized with external equity and a guaranty fund. We introduce a structural systemic risk measure that captures the...

We develop a convex-optimization clustering algorithm for heterogeneous financial networks, in the presence of arbitrary or even adversarial outliers. In the stochastic block model with heterogeneity parameters, we penalize nodes whose degree exhibit unusual behavior beyond inlier heterogeneity....

Propagation of insolvencies 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 expression for the asymptotic...