Particle Systems with Local Interactions via Hitting Times and Cascades on Graphs

Yucheng Guo and Qinxin Yan

Papers from arXiv.org

Abstract: We introduce a family of particle systems on sparse graphs where local interactions occur via hitting times, providing a dynamic and tractable model for default cascades in large sparsely-connected financial networks. Building on the framework of Lacker, Ramanan and Wu (2023), we extend convergence theory to systems with singular interactions, capturing the abrupt and discontinuous nature of systemic events. We establish conditions for well-posedness through a minimality principle and connect fragility to dynamic percolation thresholds. Our analysis demonstrates continuity of the joint law of defaults with respect to local graph convergence, establishes convergence of empirical distributions, and characterizes the default time distribution in tree-like networks. This framework offers a rigorous and flexible foundation for modeling systemic risk in evolving financial systems, featuring continuous-time dynamics, heterogeneous and local interactions, and instantaneous default cascades.

Date: 2025-05, Revised 2026-03
New Economics Papers: this item is included in nep-net and nep-rmg
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