# Mitigating cascades in sandpile models: an immunization strategy for systemic risk?

Targeted immunisation policies limit distress propagation and prevent system-wide crises in financial networks according to sandpile models.

*Journal de Physique IV* 225, 2017 (2016)

A. Scala, V. Zlatić, G. Caldarelli, G. D’Agostino

We use a simple model of distress propagation (the sandpile model) to show how financial systems are naturally subject to the risk of systemic failures. Taking into account possible network structures among financial institutions, we investigate if simple policies can limit financial distress propagation to avoid system-wide crises, i.e. to dampen systemic risk. We therefore compare different immunization policies (i.e. targeted helps to financial institutions) and find that the information coming from the network topology allows to mitigate systemic cascades by targeting just few institutions.

## More in Systemic risk

### Modelling financial systemic risk

Complex networks model the links between financial institutions and how these channels can transition from diversifying to propagating risk.

### Default cascades in networks

The optimal architecture of a financial system is only dependent on its topology when the market is illiquid, and no topology is always superior.

### Non-linear distress propagation

Non-linear models of distress propagation in financial networks characterise key regimes where shocks are either amplified or suppressed.

### Cascades in flow networks

Coupled distribution grids are more vulnerable to a cascading systemic failure but they have larger safe regions within their networks.

### The interbank network

The large-scale structure of the interbank network changes drastically in times of crisis due to the effect of measures from central banks.

### Interbank controllability

Complex networks detect the driver institutions of an interbank market and ascertain that intervention policies should be time-scale dependent.

### Fragility of the interbank network

The speed of a financial crisis outbreak sets the maximum delay before intervention by central authorities is no longer effective.

### The price of complexity

Increasing the complexity of the network of contracts between financial institutions decreases the accuracy of estimating systemic risk.

### DebtRank and shock propagation

A dynamical microscopic theory of instability for financial networks reformulates the DebtRank algorithm in terms of basic accounting principles.

### Bootstrapping topology and risk

Information about 10% of the links in a complex network is sufficient to reconstruct its main features and resilience with the fitness model.