Understanding Financial Contagion: A Complexity Modeling Perspective
Physics and Society
2025-02-21 v1
Abstract
This chapter reviews key contributions of complexity science to the study of systemic risk in financial systems. The focus is on network models of financial contagion, where I explore various mechanisms of shock propagation, such as counterparty default risk and overlapping portfolios. I highlight how the interconnectedness of financial institutions can amplify risk, and I discuss how standard risk management tools, which neglect these interactions, can increase systemic risk.
Cite
@article{arxiv.2502.14551,
title = {Understanding Financial Contagion: A Complexity Modeling Perspective},
author = {Fabio Caccioli},
journal= {arXiv preprint arXiv:2502.14551},
year = {2025}
}
Comments
25 pages, 4 figures. This article will be a contributed chapter to the SFI edited volume: The Economy as a Complex Evolving System, Part IV