A broad research program on financial networks and systemic risk is carried out within the SIMPOL Project consortium. We embark on exciting new questions — why complexity increases the uncertainty on systemic risk and what is financial contagion, exactly? — and try to clarify long-standing open questions — why financial markets can become unstable when they grow bigger and denser, as in the May-Wigner Theorem for ecological systems? And more, what is the exposure of the financial system to climate-policy shocks? Browse through the latest results.
- Multiple equilibria and systemic risk: In the paper “Uncertainty as a source of systemic risk” (view paper here) we show how multiple equilibria emerge due to the network structure and how they imply increased uncertainty in terms of probability of systemic default.
- “Leveraging the network” (View paper here): we build on the ideas of DebtRank to develop a stress-test framework that allows to compare different contagion models and assess the impact of financial networks in the EU banking system.
- “Rethinking Financial Contagion” [link forthcoming]: We explain mathematically why network contagion effects matter and why they matter very little in traditional contagion models based on the Eisenberg-Noe approach.
- “NEVA – Network Valuation in Financial Systems” (View paper here): we develop a new framework to carry out the valuation of debt claims in the presence of both uncertainty on the external assets of banks and interdependence among their balance sheets.
- Pathways to instability (View paper here): we prove a variant of the May-Wigner theorem that explain why financial networks can become unstable when they grow bigger and denser, in analogy to ecological systems.
- Clearing Systems with Credit Default Swaps (View paper here): the extension of the well-known models of Eisenberg-Noe 2001 and Rogers-Veraart 2013 to include financial derivatives leads to some interesting surprises.
- Climate stress-test of the Financial System (View paper here): A new framework based on network analysis to assess the exposure of the financial system to climate policy risks.
Partners: The FINEXUS Center for Financial Networks and Sustainability (www.finexus.uzh.ch) at the University of Zurich; IMT Lucca, Paris School of Economics, Global Climate Forum.
International collaborations: Free University of Brussels, Oxford University, Columbia University, Boston University.
The SIMPOL Project is currently funded by the H2020 European grant DOLFINS (no. 640772) in the Global Systems Science area of the Future Emerging Technologies program.