Skip to main content
SpringerLink
Log in

Minimization of Systemic Risk for Directed Network Using Genetic Algorithm

  • Conference paper
  • First Online:
Applications of Evolutionary Computation (EvoApplications 2017)

Part of the book series: Lecture Notes in Computer Science ((LNTCS,volume 10199))

Included in the following conference series:

Abstract

In directed networks, flow dynamics may lead to cascade failures due to node and link removal. The systemic risk in financial systems follows similar mechanism, where banks are connected by interbank linkages with money transfers. A mathematical model of the banking network is used to investigate the relationships between the cascade dynamics and key parameters determining the banking network structure, including the connectivity, the bank’s capitalization, and the size of interbank exposure, based on analytical calculations and numerical simulations. To optimize the network topology for the minimization of systemic risk, genetic algorithm is applied to evolve the network. It is observed that the systemic risk of financial system could be decreased by increasing the degree variance of the associated network. This could be useful for financial risk management, with possible applications to other physical systems such as ecological web, where the network stability is also an important issue.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

References

  1. Rubinov, M., Sporns, O.: Complex network measures of brain connectivity: uses and interpretations. NeuroImage 52, 1059–1069 (2010)

    Article  Google Scholar 

  2. Burt, R., Kilduff, M., Tasselli, S.: Social network analysis: foundations and frontiers on advantage. Annu. Rev. Psychol. 64, 527–547 (2013)

    Article  Google Scholar 

  3. Barberán, A., Bates, S., Casamayor, E., Fierer, N.: Using network analysis to explore co-occurrence patterns in soil microbial communities. ISME J. 8, 952 (2014)

    Article  Google Scholar 

  4. Economides, N., Tåg, J.: Network neutrality on the internet: a two-sided market analysis. SSRN Electron. J. 24, 91–104 (2012)

    Google Scholar 

  5. Çetinkaya, E., Alenazi, M., Peck, A., Rohrer, J., Sterbenz, J.: Multilevel resilience analysis of transportation and communication networks. Telecommun. Syst. 60, 515–537 (2015)

    Article  Google Scholar 

  6. Schweitzer, F., Fagiolo, G., Sornette, D., Vega-Redondo, F., Vespignani, A., White, D.: Economic networks: the new challenges. Science 325, 422–425 (2009)

    MathSciNet  MATH  Google Scholar 

  7. Eisenberg, L., Noe, T.: Systemic risk in financial systems. Manag. Sci. 47, 236–249 (2001)

    Article  MATH  Google Scholar 

  8. Feinstein, Z.: It’s a trap: emperor palpatine’s poison pill. ArXiv preprint arXiv:1511.09054 (2015)

  9. Gleeson, J., Hurd, T., Melnik, S., Hackett, A.: Systemic Risk in Banking Networks Without Monte Carlo Simulation, vol. 2. Springer, Heidelberg (2012)

    Google Scholar 

  10. Haldane, A., May, R.: Systemic risk in banking ecosystems. Nature 469, 351–355 (2011)

    Article  Google Scholar 

  11. Albert, R., Jeong, H., Barabási, A.: Error and attack tolerance of complex networks. Nature 406, 378–382 (2000)

    Article  Google Scholar 

  12. Cohen, R., Erez, K., Ben-Avraham, D., Havlin, S.: Resilience of the internet to random breakdowns. Phys. Rev. Lett. 85, 4626–4628 (2000)

    Article  Google Scholar 

  13. Sornette, D., Deschâtres, F., Gilbert, T., Ageon, Y.: Endogenous versus exogenous shocks in complex networks: an empirical test using book sale rankings. Phys. Rev. Lett. 93, 228701 (2004)

    Article  Google Scholar 

  14. Gai, P., Kapadia, S.: Contagion in financial networks. Memeo, Bank of England (2007)

    Google Scholar 

  15. Iori, G., Jafarey, S., Padilla, F.: Systemic risk on the interbank market. J. Econ. Behav. Organ. 61, 525–542 (2006)

    Article  Google Scholar 

  16. Nier, E., Yang, J., Yorulmazer, T., Alentorn, A.: Network models and financial stability. J. Econ. Dyn. Control 31, 2033–2060 (2007)

    Article  MATH  Google Scholar 

  17. Erdo, P., Rényi, A.: On random graphs. Publ. Math. 6, 290–297 (1959)

    MathSciNet  Google Scholar 

  18. May, R., Arinaminpathy, N.: Systemic risk: the dynamics of model banking systems. J. R. Soc. Interface 7, 823–838 (2009)

    Article  Google Scholar 

  19. Chatterjee, S., Laudato, M.: Genetic algorithms in statistics: procedures and applications. Commun. Stat. Simul. 26, 1617–1630 (1997)

    MATH  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Physics, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

    Wenshuo Guo & Kwok Yip Szeto

Authors
  1. Wenshuo Guo
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kwok Yip Szeto
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Kwok Yip Szeto .

Editor information

Editors and Affiliations

  1. Politecnico di Torino, Turin, Italy

    Giovanni Squillero

  2. Edinburgh Napier University, Edinburgh, United Kingdom

    Kevin Sim

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer International Publishing AG

About this paper

Cite this paper

Guo, W., Szeto, K.Y. (2017). Minimization of Systemic Risk for Directed Network Using Genetic Algorithm. In: Squillero, G., Sim, K. (eds) Applications of Evolutionary Computation. EvoApplications 2017. Lecture Notes in Computer Science(), vol 10199. Springer, Cham. https://doi.org/10.1007/978-3-319-55849-3_1

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-55849-3_1

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-55848-6

  • Online ISBN: 978-3-319-55849-3

  • eBook Packages: Computer ScienceComputer Science (R0)

Publish with us

Policies and ethics

Search

Navigation