Systemic Risk and Network Dynamics

The Systemic Risk and Network Dynamics project will examine how different types of systems, ranging from financial to ecological and beyond, are at risk of cascades of failures. As well as assessing this risk, this cross-cutting project will develop tools to help prevent such events.

©2011 iStockphoto LP

©2011 iStockphoto LP

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

23 May 2016
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. 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.

Leduc MV & Thurner S (2017). Incentivizing Resilience in Financial Networks. Journal of Economic Dynamics and Control 82: 44-66. DOI: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. 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 A (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.

Klimek P, Obersteiner M, & Thurner S (2015). Systemic trade risk of critical resources. Science Advances 1 (10): e1500522. DOI:10.1126/sciadv.1500522.

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 9781118738184 DOI:10.1002/9781119080305.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.


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Last edited: 14 December 2015

CONTACT DETAILS

Ulf Dieckmann

Program Director

Evolution and Ecology

SA-YSSP Dean (IIASA)

Capacity Building and Academic Training

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CONTACT DETAILS

Joanne Linnerooth-Bayer

Acting Program Director

Risk and Resilience

YSSP Dean

Young Scientists Summer Program

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CONTACT DETAILS

Elena Rovenskaya

Program Director

Advanced Systems Analysis

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Timeframe

2014 - 2017

International Institute for Applied Systems Analysis (IIASA)
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