Systemic risk and network intervention

Abstract

We consider a novel adversarial shock/protection problem for a class of network equilibria models emerging from a variety of different fields as continuous network games, production networks, opinion dynamic models. The problem is casted into a min-max problem and analytically solved for two particular cases of aggregate performances: the mean square of the equilibrium or of its arithmetic mean. The main result is on the shape of the solutions, typically exhibiting a waterfilling type structure with the optimal protection concentrated in a proper subset of the nodes, depending significantly on the aggregate performance considered. The relation of the optimal protection with the Bonacich centrality is also considered.