Cascading Failures in the Global Financial System: A Dynamical Model

Leonardo Stella*, Dario Bauso, Franco Blanchini, Patrizio Colaneri

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system and develop a framework to investigate under which conditions organizations remain healthy. The contribution of this paper is threefold: i) we develop a dynamical model that describes the time evolution of the organizations' equity values given nonequilibrium initial conditions; ii) we characterize the equilibria for this model; and iii) we provide a computational method to anticipate potential propagation of failures.
Original languageEnglish
Article number107122
JournalOperations Research Letters
Volume55
Early online date22 May 2024
DOIs
Publication statusPublished - 1 Jul 2024

Keywords

  • Systemic risk
  • Financial network
  • Financial contagion
  • Stability analysis

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