CSH President Stefan Thurner is a keynote speaker at the 8th International Conference on Complex Networks & Their Applications, which will take place at the Calouste Gulbenkian Foundation in Lisbon, Portugal, December 10–12, 2019.
Given the detailed network structure of financial obligations in financial markets one can compute not only compute the systemic risk contribution of the individual financial players, but also it becomes possible to estimate the contribution of systemic risk of every single financial transaction. This in turn allows us to design incentive schemes for market participants to become systemic risk sensitive, by preferring systemically unrisky transactions.
We show that such schemes lead to a restructuring of financial exposure networks in ways that suppress the possibility of cascading failure and thereby drastically reduces systemic risk. We discuss ways to compute optimal financial networks that can be used to benchmark and monitor actual financial networks.