Zlata Tabachová from the Complexity Science Hub Vienna will give a live talk on Friday, December 2, at 3 pm in the Salon.
If you would like to attend, please email to firstname.lastname@example.org.
Title: Supply chain shock propagation and financial systemic risk
One of the biggest issues arising from the complexity of economic and financial networks is their vulnerability to systemic risk (SR). The risk emerges from the structure of these networks and is typically initiated by a small failure in one of its sub-parts. As a result, damage is suffered and paid by someone else, not the one who has caused the problem. How to quantify the systemic risk in many networks is yet an unsolved problem.
We develop a method to quantify the financial systemic risk of individual firms in supply chain networks. The latter is functioning under a presence of products, information and financial exchanges. Failures in any of these three main flows might lead to manifestation of the SR. Absence of at least one essential product or service input, i.e. initial failure of a firm, will lead to production termination cascade throughout firms in the network and will cause losses in the financial system. However, in credit risk estimation, banks, typically, treat their clients (firms) as separate entities from given industries. We show, that risks in economic and financial systems can be underestimated if supply chain links are not explicitly taken into account.