Network Shock Model: Visualizing Financial Contagion
This web application implements the CFA Institute's network shock model, which explores how financial distress can propagate through a system of interconnected banks. Users can construct a network of financial institutions characterized by their interbank loans and external assets. The core mechanism involves simulating the impact of a shock—specifically, a reduction in external assets for one or more banks—and tracking how this initial disruption affects the relative valuations across the entire network.
The tool allows for flexible exploration: users can work with default network configurations, load preset scenarios, or import their own data via CSV. By graphically representing the network and its responses to shocks, the application provides an intuitive way to model financial contagion dynamics.
While deliberately simplified, the model offers insight into the systemic risks arising from financial interdependencies, and bridges theoretical network analysis with financial risk assessment.