The price of complexity in financial networks

Estimating systemic risk in networks of financial institutions represents, today, a major challenge in both science and financial policy making. This work shows how the increasing complexity of the network of contracts among institutions comes with the price of increasing inaccuracy in the estimation of systemic risk. The paper offers a quantitative method to estimate systemic risk and its accuracy.

 

The price of complexity in financial networks
Stefano Battiston, Guido Caldarelli, Robert M. May, Tarik Roukny, and Joseph E. Stiglitz

PNAS vol. 113 no. 36 

Source: www.pnas.org

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