Counterparty risk and contagion in financial networks

Xiaoyuan Zhang and Qi Hu

Applied Economics Letters, 2025, vol. 32, issue 10, 1498-1511

Abstract: Based on the concept of multi-orbit contagion, we develop a network-based probabilistic model to illustrate the risk contagion among institutions and the stability of financial networks. Our examination focuses on two key aspects: the size of component, which the network divided into different components, and the number of institutional partners. Our study finds a non-monotonic relationship between the systemic risk and the connection density, and there needs a trade-off between the number of partners and the risk contagion to reduce systemic risk. Furthermore, our analysis of core-periphery structures provides an understanding of why the”too big to fail” phenomenon occurs. Our research contributes to systemic risk analysis and has significant theoretical implications for regulators.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2024.2308562 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:32:y:2025:i:10:p:1498-1511

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2024.2308562

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().