Risk-dependent centrality in economic and financial networks

DOI10.1137/19M1302041MaRDI QIDQ3295871zbMATH OpenFDO

Authors Paolo Bartesaghi, Michele Benzi, Gian Paolo Clemente, Rosanna Grassi, Ernesto Estrada

Publication date 13 July 2020

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1907.07908

zbMATH Keywords

centrality measurescommunicabilitycomplex networksrisk propagationSI models

Mathematics Subject Classification ID

Small world graphs, complex networks (graph-theoretic aspects) (05C82) Risk models (general) (91B05) Financial networks (including contagion, systemic risk, regulation) (91G45) Financial applications of other theories (91G80)

Abstract: Node centrality is one of the most important and widely used concepts in the study of complex networks. Here, we extend the paradigm of node centrality in financial and economic networks to consider the changes of node "importance" produced not only by the variation of the topology of the system but also as a consequence of the external levels of risk to which the network as a whole is submitted. Starting from the "Susceptible-Infected" (SI) model of epidemics and its relation to the communicability functions of networks we develop a series of risk-dependent centralities for nodes in (financial and economic) networks. We analyze here some of the most important mathematical properties of these risk-dependent centrality measures. In particular, we study the newly observed phenomenon of ranking interlacement, by means of which two entities may interlace their ranking positions in terms of risk in the network as a consequence of the change in the external conditions only, i.e., without any change in the topology. We test the risk-dependent centralities by studying two real-world systems: the network generated by collecting assets of the S&P 100 and the corporate board network of the US top companies, according to Forbes in 1999. We found that a high position in the ranking of the analyzed financial companies according to their risk-dependent centrality corresponds to companies more sensitive to the external market variations during the periods of crisis.

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Cited in

(9)

• The effects of node exclusion on the centrality measures in graph models of interacting economic agents
• A tail-revisited Markowitz mean-variance approach and a portfolio network centrality
• Optimal intervention in economic networks using influence maximization methods
• Where to cut to delay a pandemic with minimum disruption? Mathematical analysis based on the SIS model
• `Too central to fail' firms in bi-layered financial networks: linkages in the US corporate bond and stock markets
• Contagion and supervision of liquidity crisis in interbank markets: based on the SIS network model
• Matrix functions in network analysis
• Tail risk in production networks
• Analyzing communicability and connectivity in the Indian stock market during crises

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