Self-organized criticality in a model
of collective bankruptcies
A. Aleksiejuk, J.A. Holyst
Abstract
The question we address here is of whether phenomena of
collective
bankruptcies are related to self-organized criticality. In order
to answer
it we propose a simple model of banking networks [1] based on
random
directed percolation. In comparison to previous work, the major
development of the present model is the implementation of the
concept of
banking balance, which when positive, can be invested to make
profits, but
when negative, must be refilled to prevent the loss of liquidity.
Directed
connections between the nodes of bank lattice simulate flows of
money.
Since we assign weights to these connections, the model may be
termed as
'weighted percolation'. We study effects of one bank's failure on
the
nucleation of contagion phase in a financial market. We recognize
the
power law distribution of contagion sizes as an indicator of
self-organized critical behavior of the model
[1] A. Aleksiejuk, J.A. Hoyst, A simple model of bank
bankruptcies,
arXiv: cond-mat/0109119, Physica A (2001) in press.