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Physics > Physics and Society

arXiv:2103.05623 (physics)
[Submitted on 9 Mar 2021]

Title:The Physics of Financial Networks

Authors:Marco Bardoscia, Paolo Barucca, Stefano Battiston, Fabio
Caccioli, Giulio Cimini, Diego Garlaschelli, Fabio Saracco, Tiziano
Squartini, Guido Caldarelli
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    Abstract: The field of Financial Networks is a paramount example
    of the novel applications of Statistical Physics that have made
    possible by the present data revolution. As the total value of
    the global financial market has vastly outgrown the value of the
    real economy, financial institutions on this planet have created
    a web of interactions whose size and topology calls for a
    quantitative analysis by means of Complex Networks. Financial
    Networks are not only a playground for the use of basic tools of
    statistical physics as ensemble representation and entropy
    maximization; rather, their particular dynamics and evolution
    triggered theoretical advancements as the definition of DebtRank
    to measure the impact and diffusion of shocks in the whole
    systems. In this review we present the state of the art in this
    field, starting from the different definitions of financial
    networks (based either on loans, on assets ownership, on
    contracts involving several parties -- such as credit default
    swaps, to multiplex representation when firms are introduced in
    the game and a link with real economy is drawn) and then
    discussing the various dynamics of financial contagion as well as
    applications in financial network inference and validation. We
    believe that this analysis is particularly timely since financial
    stability as well as recent innovations in climate finance, once
    properly analysed and understood in terms of complex network
    theory, can play a pivotal role in the transformation of our
    society towards a more sustainable world.

Comments: version submitted to Nature Reviews Physics
          Physics and Society (physics.soc-ph); Statistical Mechanics
Subjects: (cond-mat.stat-mech); Social and Information Networks
          (cs.SI); Risk Management (q-fin.RM)
Cite as:  arXiv:2103.05623 [physics.soc-ph]
          (or arXiv:2103.05623v1 [physics.soc-ph] for this version)

Submission history

From: Giulio Cimini [view email]
[v1] Tue, 9 Mar 2021 18:52:57 UTC (1,670 KB)
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