Giansante, Simone and Manfredi, Sabato and Markose, Sheri (2023) Fair immunization and network topology of complex financial ecosystems. Physica A: Statistical Mechanics and its Applications, 612. p. 128456. DOI https://doi.org/10.1016/j.physa.2023.128456
Giansante, Simone and Manfredi, Sabato and Markose, Sheri (2023) Fair immunization and network topology of complex financial ecosystems. Physica A: Statistical Mechanics and its Applications, 612. p. 128456. DOI https://doi.org/10.1016/j.physa.2023.128456
Giansante, Simone and Manfredi, Sabato and Markose, Sheri (2023) Fair immunization and network topology of complex financial ecosystems. Physica A: Statistical Mechanics and its Applications, 612. p. 128456. DOI https://doi.org/10.1016/j.physa.2023.128456
Abstract
The aftermath of the recent financial crisis has shown how expensive and unfair the stabilization of financial ecosystems can be. The main cause is the level of complexity of financial interactions that poses a problem for regulators. We provide an analytical framework that decomposes complex ecosystems in both their overall level of instability and the contribution of institutions to instability. These ingredients are then used to study the pathways of the ecosystems towards stability by means of immunization schemes. The latter can be designed to penalize institutions proportionally to their contribution to instability, and therefore enhance fairness. We show that fair immunization schemes can also be cost-efficient when employed on ecosystems characterized by a tiered network structure of interactions concentrated among few core nodes that at the same time form many closed cycles that exacerbate instability. For less tiered network topologies we observe a trade-off between fairness and dollar-cost of immunization, allowing regulators to choose the combination that best meets their objectives. The implementation of immunization schemes on real cross-border financial networks of the Bank of International Settlement (BIS) reporting country banking systems is also provided.
Item Type: | Article |
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Uncontrolled Keywords: | Banks; Dynamical systems; Financial networks; Stability analysis; Systemic risk |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 28 Feb 2023 12:35 |
Last Modified: | 16 May 2024 21:43 |
URI: | http://repository.essex.ac.uk/id/eprint/35041 |
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