Aalto Systems Forum

Systemic Risk in Economic and Financial Networks

A Public Lecture by Prof. Frank Schweitzer

Tuesday, June 5th 2012 at 12.30-13.30
Hall C/G-112 PWC, Chydenia, Aalto School of Economics, Runeberginkatu 22–24, 00100 Helsinki

The term 'systemic risk' commonly denotes the risk that a whole system consisting of many interacting agents fails. It is a macroscopic property that emerges from the nonlinear interactions of agents.

Examples of systemic risk encompass a variety of areas, such as financial systems (spreading of financial distress), supply networks (breakdown of a single relevant supplier), social systems (epidemic spreading), power grids (blackout after failure cascades), but also material science (rupture of single fibers gets amplified) and socio-technical systems (public transport).

There are different approaches to estimate systemic risk.  While a conventional view on systemic risk mainly focuses on the extreme conditions of a single agent to fail, the systemic perspective emphasizes in addition the effect exerted on other agents as a result of individual failure. I.e. the systemic failure can start with the failure of a few agents which is amplified both by interaction mechanisms and by systemic feedback.

Our aim is to provide a general framework for modeling systemic risk, which can be applied not just to a specific case but allows generic insights. Our approach is based on the concept of complex networks, where agents are represented by nodes in a network, whereas their interactions are modeled by links between them. Both nodes and links can follow their own dynamics and there is a feedback between these. In order to understand the emergence of systemic risk, we have to model (a) the internal dynamics of the agents, which is largely neglected in other approaches, (b) the interaction dynamics of the agents (in particular the network topology), (c) macroscopic or systemic feedback, i.e. the impact of changing external conditions: (d) trend reinforcement, i.e.  interaction is path dependent and involves the history of previous interactions.

The talk provides a framework for modeling systemic risk which takes the above components into accout. We further provide examples how to apply this framework, and point to empirical evidence of our approach.

The event is organized by the Systems Analysis Laboratory research group at the Department of Mathematics and Systems Analysis of Aalto University School of Science.

Background:

Frank Schweitzer has been Full Professor for Systems Design at ETH Zurich since 2004. He is also associated member of the Department of Physics at the ETH Zurich.

In his professional carrier, he worked for different research institutions (Max-Planck Institute for the Physics of Complex Systems, Dresden, Fraunhofer Institute for Autonomous Intelligent Systems, Sankt Augustin) and universities (Humboldt University Berlin, Cornell University Ithaca NY, Emory University, Atlanta GA).

Frank Schweitzer received his first Ph.D. (Dr. rer. nat.) in theoretical physics and his second Ph.D. (Dr. phil.) in philosophy of science, he further earned a habilitation/Venia Legendi in Physics. He initiated and lead (2001-2005) a section of the German Physical Society (DPG) for the physics of socio-economic systems (AKSOE). Further, he was a founding member and member of the steering committee of the European Network of Excellence "Complex Systems" (EXYSTENCE) (2001-2006). Frank Schweitzer is the Editor-in-Chief of "Advances in Complex Systems" (ACS). He is also member of the editorial board of different economics and physics journals.

Numerous books, publications in very different fields and a wide spectrum of invited talks demonstrate Frank Schweitzers broadly based scientific interest. The recent focus of the research group of Frank Schweitzer is on applications of complex systems theory to the dynamics of social and economic organizations. This includes the development of formal concepts, quantitative modeling and computer simulations.

Enrollment:

The event is free of charge and open for all who are interested. To estimate the number of participants pre-enrollment trough the form below is appreciated. The event will be held in English.

Aalto Systems Forum

The growing challenge of our time is the need to have the ability to see and manage wholes, i.e. systems. The Aalto Systems Forum aims to be a platform of dialogue for practitioners and reasearchers to share the latest results of the field by top international scholars.

Aalto Systems Forum is organized by the Systems Analysis Laboratory research group at the Department of Mathematics and Systems Analysis of Aalto University School of Science. http://www.sal.hut.fi/en/aaltosystemsforum /