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.
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:
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 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
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
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. DOI:10.1111/risa.12761.
Leduc MV, 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. DOI:10.21314/JNTF.2017.034.
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. DOI: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. DOI:10.1016/j.insmatheco.2016.11.008.
Leduc MV & Momot R (2017). Strategic investment in protection in networked systems. Network Science 5 (1): 108-139. DOI:10.2139/ssrn.2515968.
Gephart JA, Rovenskaya E, Dieckmann U, Pace ML, & 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 BD (2017). Network structure impacts global commodity trade growth and resilience. PLoS ONE 12 (2): e0171184. DOI: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. DOI: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. DOI:10.1007/s11027-016-9713-0.
Poledna S, Molina-Borboa JL, 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. DOI:10.1016/j.jfs.2015.08.001.
Shanafelt DW, 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. DOI:10.1016/j.jtbi.2015.06.017.
Kovacevic RM & 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 JD, & 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. DOI:10.1016/j.jedc.2014.08.020.
Poledna S, Thurner S, Farmer JD, & Geanakoplos J (2014). Leverage-induced systemic risk under Basle II and other credit risk policies. Journal of Banking & Finance 42 (1): 199-212. DOI:10.1016/j.jbankfin.2014.01.038.
Last edited: 14 December 2015
2014 - 2017
23 May 2016
International Institute for Applied Systems Analysis (IIASA)
Schlossplatz 1, A-2361 Laxenburg, Austria
Phone: (+43 2236) 807 0 Fax:(+43 2236) 71 313