Default contagion in financial block networks

We extend analytic results on default contagion in large financial networks to capture a pronounced block model structure which includes as a special case core-periphery networks. In the literature on systemic risk in large... [ view full abstract ]

We extend analytic results on default contagion in large financial networks to capture a pronounced block model structure which includes as a special case core-periphery networks. In the literature on systemic risk in large random networks one problematic assumption is that the distribution of interbank liabilities only depends on the creditor. We study a more general setting and obtain among others resilience conditions for the global network based on sub-network conditions. Contrasting earlier research we also give an example that demonstrates how reshuffling edge weights to form blocks can in fact impact resilience even for otherwise very homogeneous networks.