2010, “Contagion in financial networks

This paper develops a general analytical model of contagion in \u85nancial networks, identifying both its probability and potential impact. We explore how contagion risk is inuenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity. Our \u85ndings suggest that \u85nancial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be very low, the e¤ects could be extremely widespread should problems occur. The resilience of the system to large shocks in the past is also unlikely to prove a reliable guide to future contagion