Cascading failure, financial network and systemic risk

This paper addresses the challenge of accurately measuring systemic risk by introducing a novel indicator, Expected Shortfall Rank (ESRank), which accounts for cascading failures and network effects often overlooked in traditional models. Using LASSO to construct tail risk networks among financial institutions and ΔCoES to simulate contagion dynamics, the study develops a general cascading failure model to capture systemic vulnerabilities in the financial system.