Systemic risk in multiplex networks with asymmetric coupling and threshold feedback

DOI10.1016/J.PHYSD.2015.10.004MaRDI QIDQ2357546zbMATH OpenOpenAlexWikidataFDO

Authors Rebekka Burkholz, Matt V. Leduc, Antonios Garas, Frank Schweitzer

Publication date 14 June 2017

Published in Physica D (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1506.06664

zbMATH Keywords

cascadesmultiplex networkssystemic risk

Mathematics Subject Classification ID

Random graphs (graph-theoretic aspects) (05C80) Stochastic network models in operations research (90B15) Actuarial science and mathematical finance (91G99)

Abstract: We study cascades on a two-layer multiplex network, with asymmetric feedback that depends on the coupling strength between the layers. Based on an analytical branching process approximation, we calculate the systemic risk measured by the final fraction of failed nodes on a reference layer. The results are compared with the case of a single layer network that is an aggregated representation of the two layers. We find that systemic risk in the two-layer network is smaller than in the aggregated one only if the coupling strength between the two layers is small. Above a critical coupling strength, systemic risk is increased because of the mutual amplification of cascades in the two layers. We even observe sharp phase transitions in the cascade size that are less pronounced on the aggregated layer. Our insights can be applied to a scenario where firms decide whether they want to split their business into a less risky core business and a more risky subsidiary business. In most cases, this may lead to a drastic increase of systemic risk, which is underestimated in an aggregated approach.

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Cites work

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Cited in

(8)

• The multiplex dependency structure of financial markets
• How big is too big? Critical shocks for systemic failure cascades
• Bank multiplex networks and systemic risk
• Double-layer network model of bank-enterprise counterparty credit risk contagion
• Nonlinear dynamics on interconnected networks
• A MULTILAYER VIEW OF SYSTEMIC IMPORTANCE AND AGGREGATE FLUCTUATIONS
• MODELING SOCIAL RESILIENCE: QUESTIONS, ANSWERS, OPEN PROBLEMS
• Systemic risk in a unifying framework for cascading processes on networks

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