Related papers: How Damage Diversification Can Reduce Systemic Ris…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
The paper provides a framework for the assessment and optimization of the total risk of complex distributed systems. The framework takes into account the risk of each agent, which may arise from heterogeneous sources, as well as the risk…
A debt swap is an elementary edge swap in a directed, weighted graph, where two edges with the same weight swap their targets. Debt swaps are a natural and appealing operation in financial networks, in which nodes are banks and edges…
We address a fundamental problem that is systematically encountered when modeling complex systems: the limitedness of the information available. In the case of economic and financial networks, privacy issues severely limit the information…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
We model smart grids as complex interdependent networks, and study targeted attacks on smart grids for the first time. A smart grid consists of two networks: the power network and the communication network, interconnected by edges.…
In [1] Zawadoski introduces a banking network model in which the asset and counter-party risks are treated separately and the banks hedge their assets risks by appropriate OTC contracts. In his model, each bank has only two counter-party…
Vertex classification -- the problem of identifying the class labels of nodes in a graph -- has applicability in a wide variety of domains. Examples include classifying subject areas of papers in citation networks or roles of machines in a…
The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…
Interdependent networks are characterized by two kinds of interactions: The usual connectivity links within each network and the dependency links coupling nodes of different networks. Due to the latter links such networks are known to…
Dimension reduction is a common strategy to study non-linear dynamical systems composed by a large number of variables. The goal is to find a smaller version of the system whose time evolution is easier to predict while preserving some of…
Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…
Risk diversification is one of the dominant concerns for portfolio managers. Various portfolio constructions have been proposed to minimize the risk of the portfolio under some constrains including expected returns. We propose a portfolio…
Increasing connectivity of communication networks enables large-scale distributed processing over networks and improves the efficiency for information exchange. However, malware and virus can take advantage of the high connectivity to…
We consider a network of bank holdings, where every holding has two subsidiaries of different types. A subsidiary can trade with another holding's subsidiary of the same type. Holdings support their subsidiaries up to a certain level when…
Recent studies of attacks on complex networks suggest that small initial breakdowns can lead to global cascades of overload failures in communication, economic trading, and supply-transportation systems, considering the defense methods is…
The vulnerability of machine learning systems to adversarial attacks questions their usage in many applications. In this paper, we propose a randomized diversification as a defense strategy. We introduce a multi-channel architecture in a…
Previous network models have imagined that connections change to promote structural balance, or to reflect hierarchies. We propose a model where agents adjust their connections to appear credible to an external observer. In particular, we…
During a financial crisis, the capital markets network frequently exhibits a high correlation between returns. We developed a network analysis framework based on daily returns from 42 countries to determine systemic stability. Our network…
The inability to see and quantify systemic financial risk comes at an immense social cost. Systemic risk in the financial system arises to a large extent as a consequence of the interconnectedness of its institutions, which are linked…