Default Contagion in Financial Networks

The preset work aims at giving insights about how the theory behind the study of complex networks can be profitably used to analyse the increasing complexity characterizing a wide number of current financial frameworks. In particular we exploit some well known approaches developed within the setting of the graph theory, such as, e.g., the Erdős and Rény model, and the Barabási-Albert model, as well as producing an analysis based on the evolving network theory. Numerical simulations are performed to study the spread of financial peak events, as in the case of the default of a single bank belonging to a net of interconnected monetary institutions, showing how the knowledge about the underlying graph theory can be effectively used to withstand a financial default contagion. Keywords—Financial networks, default spread, graph theory, random graphs