Systemic Risk and Network Dynamics
Overview
Systemic risk describes the likelihood of an entire system breaking down—a situation caused by cascades of failures in the networks that make up the system. Knowledge of such risk can be invaluable. The global economic crisis brought to light the importance of understanding how disturbances spread through financial systems, for example. Epidemics of infectious diseases and the spread of forest fires also illustrate the underlying principals, and importance, of systemic risk.
Crucially, although all systems have unique characteristics, they also share common features. This project will draw together these commonalities to create a general framework for analyzing systemic risk. Once this framework is in place it can be used to assess and reduce risks in a diverse array of applications.
IIASA research
This cross-cutting project aims to develop methods to measure and reduce systemic risk and to provide tools to assess the potential for system collapse, even under uncertainty. This is vital because situations in which specifics about a network’s dynamics are unknown are common in the real world. The researchers will also investigate techniques for guiding the system back to normal after a cascade of failures.
The project will assess risk in ecological systems (under the IIASA Evolution and Ecology program), financial systems (under the Advanced Systems Analysis program), and the global insurance system (under the Risk, Policy and Vulnerability program).
Specifically, three case studies will be examined in depth:
- Food webs. As biodiversity declines, we need to understand how species loss will affect ecosystem functioning. Using real-world food-web data, the researchers will analyze under what conditions species loss can set off a cascade of subsequent extinctions.
- Financial crises. As financial systems become increasingly complex and interconnected there is a recognized need for early warnings of systemic failures, even under conditions of high uncertainty.
- Global insurance and climate-change risks. As climate change progresses and climate-related disasters become more common, there is a need ensure robust insurance for cascading failures to allow households, towns and countries to recover from such events.
Events
IIASA joins Complexity Science Hub Vienna
At the Visions for Complexity Conference, organized by the Complexity Science Hub Vienna (CSH), IIASA was officially ann... More
Invited Talks
Dimitris Christopoulos visited IIASA
Dimitris Christopoulo from MODUL University, Vienna, Austria and Edinburgh Business School, Heriot-Watt University, Edinburgh, UK visited IIASA in the framework of the Systemic Risk and Network Dynamics project and gave a talk on "Robustness and Resilience in Governance Networks" on 12 December, 2017. More
Pia-Johanna Schweizer visited IIASA
Pia-Johanna Schweizer from the Institute for Advanced Sustainability Studies (IASS), Potsdam, Germany visited IIASA in the framework of the Systemic Risk and Network Dynamics project and gave a talk on "Governance of systemic risks: Challenges for decision and policy making" on 25 April, 2017. More
Vittorio Loreto visited IIASA
Vittorio Loreto (Sapienza University of Rome, Italy) visited IIASA and gave a talk in the framework of the Systemic Risk and Network Dynamics project on "Gaming, innovation and learning: new tools to face societal challenges" on 26 February, 2016. More
Miguel Centeno visited IIASA
Miguel Centeno (Princeton University, USA) visited IIASA on 23 June, 2016 and gave a talk on "Global Systemic Risk". More
Babak Heydari visited IIASA
Babak Heydari (Stevens Institute of Technology, Hoboken, USA) visited IIASA in the framework of the Systemic Risk and Network Dynamics project on 17 June, 2016 and gave a talk on "A structural perspective on governance of complex socio-technical systems". More
Stefan Pickl and Martin Zsifkovits visited IIASA
Prof. Dr. Stefan Pickl and Dr. Martin Zsifkovits visited IIASA in the framework of the Systemic Risk and Network Dynamics project on 18 January 2016 and gave a talk on Simulation and Optimization of Critical Infrastructures and PUMA - Public Management Analytics. More
Publications
Gaupp, F., Pflug, G. , Hochrainer-Stigler, S., Hall, J., & Dadson, S. (2017). Dependency of Crop Production between Global Breadbaskets: A Copula Approach for the Assessment of Global and Regional Risk Pools. Risk Analysis 37 (11), 2212-2228. 10.1111/risa.12761.
Leduc, M.V., Poledna, S., & Thurner, S. (2017). Systemic risk management in financial networks with credit default swaps. The Journal of Network Theory in Finance 3 (3), 19-39. 10.21314/JNTF.2017.034.
Leduc, M.V. & Thurner, S. (2017). Incentivizing Resilience in Financial Networks. Journal of Economic Dynamics and Control 82, 44-66. 10.1016/j.jedc.2017.05.010.
Poledna, S., Bochmann, O., & Thurner, S. (2017). Basel III capital surcharges for G-SIBs are far less effective in managing systemic risk in comparison to network-based, systemic risk-dependent financial transaction taxes. Journal of Economic Dynamics and Control 77, 230-246. 10.1016/j.jedc.2017.02.004.
Pflug, G. , Timonina-Farkas, A., & Hochrainer-Stigler, S. (2017). Incorporating model uncertainty into optimal insurance contract design. Insurance: Mathematics and Economics 73, 68-74. 10.1016/j.insmatheco.2016.11.008.
Leduc, M.V. & Momot, R. (2017). Strategic investment in protection in networked systems. Network Science 5 (1), 108-139. 10.2139/ssrn.2515968.
Gephart, J.A., Rovenskaya, E. , Dieckmann, U. , Pace, M.L., & Brännström, Å. (2017). Vulnerability to Shocks in the Global Seafood Trade Network. In: IIASA Institutional Evaluation 2017, 27 February-1 March 2017, IIASA, Laxenburg, Austria.
Kharrazi, A. , Rovenskaya, E. , & Fath, B. (2017). Network structure impacts global commodity trade growth and resilience. PLoS ONE 12 (2), e0171184. 10.1371/journal.pone.0171184.
Poledna, S. & Thurner, S. (2016). Elimination of systemic risk in financial networks by means of a systemic risk transaction tax. Quantitative Finance, 1-15. 10.1080/14697688.2016.1156146.
Schinko, T. , Mechler, R. , & Hochrainer-Stigler, S. (2016). A methodological framework to operationalize Climate Risk Management: Managing sovereign climate-related extreme event risk in Austria. Mitigation and Adaptation Strategies for Global Change, 1-24. 10.1007/s11027-016-9713-0.
Klimek, P., Obersteiner, M. , & Thurner, S. (2015). Systemic trade risk of critical resources. Science Advances 1 (10), e1500522. 10.1126/sciadv.1500522.
Poledna, S., Molina-Borboa, J.L., Martinez-Jaramillo, S., van der Leij, M., & Thurner, S. (2015). The multi-layer network nature of systemic risk and its implications for the costs of financial crises. Journal of Financial Stability 20, 70-81. 10.1016/j.jfs.2015.08.001.
Shanafelt, D.W., Dieckmann, U. , Jonas, M. , Franklin, O. , Loreau, M., & Perrings, C. (2015). Biodiversity, productivity, and the spatial insurance hypothesis revisited. Journal of Theoretical Biology 380, 426-435. 10.1016/j.jtbi.2015.06.017.
Kovacevic, R.M. & Pflug, G. (2015). Measuring systemic risk: structural approaches. In: Quantitative Financial Risk Management: Theory and Practice. Eds. Zopounidis, C & (Eds.), G. Galariotis, pp. 1-21 Hoboken, NJ, USA: John Wiley & Sons. ISBN 978111873818410.1002/9781119080305.ch1.
Klimek, P., Poledna, S., Farmer, J.D., & Thurner, S. (2015). To bail-out or to bail-in? Answers from an agent-based model. Journal of Economic Dynamics and Control 50, 144-154. 10.1016/j.jedc.2014.08.020.
Poledna, S., Thurner, S., Farmer, J.D., & Geanakoplos, J. (2014). Leverage-induced systemic risk under Basle II and other credit risk policies. Journal of Banking & Finance 42 (1), 199-212. 10.1016/j.jbankfin.2014.01.038.