Fig. 4.

The probability of systemic default as a function of the maximal network density. We consider all feasible network configurations for a given cap on link density: The green and blue areas represent the range of possible values of probability of systemic default for two parameter sets. Three benchmark configurations are highlighted: out-star, circle, and complete graph. The red curve represents the network entropy. Shocks are uniformly distributed. Parameter values are as follows: (blue area) $\beta =3$, $\mathit{ϵ}=10$, $\delta =3$, $\sigma =0.08$, $R=0.5$, $P^0=0.1$, and $\mu =-0.03$; (green area) $\beta =3$, $\mathit{ϵ}=10$, $\delta =3$, $\sigma =0.05$, $R=0.5$, $P^0=0.1$, and $\mu =-0.08$.