Abstract
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.
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