Cascades in multiplex financial networks with debts of different seniority

Control of cascading failures using protective measures

Cascading failures, triggered by a local perturbation, can be catastrophic and cause irreparable damages in a wide area. Hence, blocking the devastating cascades is an important issue in real world networks. One of the ways to control the cascade is to use protective me‌asures, so that the agents decide to be protected against failure. Here, we consider a coevolution of the linear threshold mo‌del for the spread of cascading failures and a decision-making game based on the perceived risk of failure. Protected agents are less vulnerable to failure and in return the size of the cascade affects the agent's decision to get insured. We find at what range of protection efficiency and cost of failure, the global cascades stop. Also we observe that in some range of protection efficiency, a bistable region emerges for the size of cascade and the prevalence of protected agents. Moreover, we show how savings or the ability of agents to repair can prevent cascades from occurring.

Systemic risk measured by the resiliency of the system to initial shocks

The analysis of systemic risk often revolves around examining various measures utilized by practitioners and policymakers. These measures typically focus on assessing the extent to which external events can impact a financial system, without delving into the nature of the initial shock. In contrast, our approach takes a symmetrical standpoint and introduces a set of measures centered on the quantity of external shock that the system can absorb before experiencing deterioration. To achieve this, we employ a linearized version of DebtRank, which facilitates a clear depiction of the onset of financial distress, thereby enabling accurate estimation of systemic risk. Through the utilization of spectral graph theory, we explicitly compute localized and uniform exogenous shocks, elucidating their behavior. Additionally, we expand the analysis to encompass heterogeneous shocks, necessitating computation via Monte Carlo simulations. We firmly believe that our approach is both comprehensive and intuitive, enabling a standardized assessment of failure risk in financial systems.

Social contagion induced by uncertain information

Information and individual activities often spread globally through the network of social ties. While social contagion phenomena have been extensively studied within the framework of threshold models, it is common to make an assumption that may be violated in reality: each individual can observe the neighbors' states without error. Here, we analyze the dynamics of global cascades under uncertainty in an otherwise standard threshold model. Each individual uses statistical inference to estimate the probability distribution of the number of active neighbors when deciding whether to be active, which gives a probabilistic threshold rule. Unlike the deterministic threshold model, the spreading process is generally nonmonotonic, as the inferred distribution of neighbors' states may be updated as a new signal arrives. We find that social contagion may occur as a self-fulfilling event in that misperception may trigger a cascade in regions where cascades would never occur under certainty.

Diffusion dynamics of competing information on networks

Information diffusion on social networks has been described as a collective outcome of threshold behaviors in the framework of threshold models. However, since the existing models do not take into account individuals' optimization problems, it remains an open question what dynamics emerge in the diffusion process when individuals face multiple (and possibly incompatible) information sources. Here, we develop a microfounded general threshold model that enables us to analyze the collective dynamics of individual behavior in the propagation of multiple information sources. The analysis reveals that the virality of competing information sources is fundamentally indeterminate. When individuals maximize coordination with neighbors, the diffusion process is described as a saddle path, thereby leading to unpredictable symmetry breaking. When individuals' choices are irreversible, there is a continuum of stable equilibria where a certain degree of social polarization takes place by chance.

Causal motifs and existence of endogenous cascades in directed networks with application to company defaults

Motivated by the problem of detection of cascades of defaults in economy, we developed a detection framework for an endogenous spreading based on causal motifs we define in this paper. We assume that the change of state of a vertex can be triggered either by an endogenous (related to the network) or an exogenous (unrelated to the network) event, that the underlying network is directed and that times when vertices changed their states are available. After simulating default cascades driven by different stochastic processes on different synthetic networks, we show that some of the smallest causal motifs can robustly detect endogenous spreading events. Finally, we apply the method to the data of defaults of Croatian companies and observe the time window in which an endogenous cascade was likely happening.

Asymmetry-induced order in multilayer networks

Symmetries naturally occur in real-world networks and can significantly influence the observed dynamics. For instance, many synchronization patterns result from the underlying network symmetries, and high symmetries are known to increase the stability of synchronization. Yet here we find that general macroscopic features of network solutions such as regularity can be induced by breaking their symmetry of interactions. We demonstrate this effect in an ecological multilayer network where the topological asymmetries occur naturally. These asymmetries rescue the system from chaotic oscillations by establishing stable periodic orbits and equilibria. We call this phenomenon asymmetry-induced order and uncover its mechanism by analyzing both analytically and numerically the absence of dynamics on the system's synchronization manifold. Moreover, the bifurcation scenario describing the route from chaos to order is also disclosed. We demonstrate that this result also holds for generic node dynamics by analyzing coupled paradigmatic Rössler and Lorenz systems.

Controlling systemic risk: Network structures that minimize it and node properties to calculate it

Evaluation of systemic risk in networks of financial institutions in general requires information of interinstitution financial exposures. In the framework of the DebtRank algorithm, we introduce an approximate method of systemic risk evaluation which requires only node properties, such as total assets and liabilities, as inputs. We demonstrate that this approximation captures a large portion of systemic risk measured by DebtRank. Furthermore, using Monte Carlo simulations, we investigate network structures that can amplify systemic risk. Indeed, while no topology in general sense is a priori more stable if the market is liquid (i.e., the price of transaction creation is small) [T. Roukny et al., Sci. Rep. 3, 2759 (2013)10.1038/srep02759], a larger complexity is detrimental for the overall stability [M. Bardoscia et al., Nat. Commun. 8, 14416 (2017)10.1038/ncomms14416]. Here we find that the measure of scalar assortativity correlates well with level of systemic risk. In particular, network structures with high systemic risk are scalar assortative, meaning that risky banks are mostly exposed to other risky banks. Network structures with low systemic risk are scalar disassortative, with interactions of risky banks with stable banks.

A toy model for the epidemic-driven collapse in a system with limited economic resource

ABSTRACT

Based on a toy model for a trivial socioeconomic system, we demonstrate that the activation-type mechanism of the epidemic-resource coupling can lead to the collapsing effect opposite to thermal explosion. We exploit a SIS-like (susceptible-infected-susceptible) model coupled with the dynamics of average economic resource for a group of active economic agents. The recovery rate of infected individuals is supposed to obey the Arrhenius-like law, resulting in a mutual negative feedback between the number of active agents and resource acquisition. The economic resource is associated with the average amount of money or income per agent and formally corresponds to the effective market temperature of agents, with their income distribution obeying the Boltzmann-Gibbs statistics. A characteristic level of resource consumption is associated with activation energy. We show that the phase portrait of the system features a collapse phase, in addition to the well-known disease-free and endemic phases. The epidemic intensified by the increasing resource deficit can ultimately drive the system to a collapse at nonzero activation energy because of limited resource. We briefly discuss several collapse mitigation strategies involving either financial instruments like subsidies or social regulations like quarantine.

GRAPHIC ABSTRACT

Exploring direct citations between citing publications

This article defines and explores the direct citations between citing publications (DCCPs) of a publication. We construct an ego-centred citation network for each paper that contains all of its citing papers and itself, as well as the citation relationships among them. By utilising a large-scale scholarly dataset from the computer science field in the Microsoft Academic Graph (MAG-CS) dataset, we find that DCCPs exist universally in medium and highly cited papers. For those papers that have DCCPs, DCCPs do occur frequently; highly cited papers tend to contain more DCCPs than others. Meanwhile, the number of DCCPs of papers published in different years does not vary dramatically. This paper also discusses the relationship between DCCPs and some indirect citation relationships (e.g. co-citation and bibliographic coupling).

Network Diffusion Promotes the Integrative Analysis of Multiple Omics

The development of integrative methods is one of the main challenges in bioinformatics. Network-based methods for the analysis of multiple gene-centered datasets take into account known and/or inferred relations between genes. In the last decades, the mathematical machinery of network diffusion—also referred to as network propagation—has been exploited in several network-based pipelines, thanks to its ability of amplifying association between genes that lie in network proximity. Indeed, network diffusion provides a quantitative estimation of network proximity between genes associated with one or more different data types, from simple binary vectors to real vectors. Therefore, this powerful data transformation method has also been increasingly used in integrative analyses of multiple collections of biological scores and/or one or more interaction networks. We present an overview of the state of the art of bioinformatics pipelines that use network diffusion processes for the integrative analysis of omics data. We discuss the fundamental ways in which network diffusion is exploited, open issues and potential developments in the field. Current trends suggest that network diffusion is a tool of broad utility in omics data analysis. It is reasonable to think that it will continue to be used and further refined as new data types arise (e.g. single cell datasets) and the identification of system-level patterns will be considered more and more important in omics data analysis.

The interconnected wealth of nations: Shock propagation on global trade-investment multiplex networks

The increasing integration of world economies, which organize in complex multilayer networks of interactions, is one of the critical factors for the global propagation of economic crises. We adopt the network science approach to quantify shock propagation on the global trade-investment multiplex network. To this aim, we propose a model that couples a spreading dynamics, describing how economic distress propagates between connected countries, with an internal contagion mechanism, describing the spreading of such economic distress within a given country. At the local level, we find that the interplay between trade and financial interactions influences the vulnerabilities of countries to shocks. At the large scale, we find a simple linear relation between the relative magnitude of a shock in a country and its global impact on the whole economic system, albeit the strength of internal contagion is country-dependent and the inter-country propagation dynamics is non-linear. Interestingly, this systemic impact can be associated to intra-layer and inter-layer scale factors that we name network multipliers, that are independent of the magnitude of the initial shock. Our model sets-up a quantitative framework to stress-test the robustness of individual countries and of the world economy.

Extracting the multi-timescale activity patterns of online financial markets

Online financial markets can be represented as complex systems where trading dynamics can be captured and characterized at different resolutions and time scales. In this work, we develop a methodology based on non-negative tensor factorization (NTF) aimed at extracting and revealing the multi-timescale trading dynamics governing online financial systems. We demonstrate the advantage of our strategy first using synthetic data, and then on real-world data capturing all interbank transactions (over a million) occurred in an Italian online financial market (e-MID) between 2001 and 2015. Our results demonstrate how NTF can uncover hidden activity patterns that characterize groups of banks exhibiting different trading strategies (normal vs. early vs. flash trading, etc.). We further illustrate how our methodology can reveal "crisis modalities" in trading triggered by endogenous and exogenous system shocks: as an example, we reveal and characterize trading anomalies in the midst of the 2008 financial crisis.

Framework for cascade size calculations on random networks

We present a framework to calculate the cascade size evolution for a large class of cascade models on random network ensembles in the limit of infinite network size. Our method is exact and applies to network ensembles with almost arbitrary degree distribution, degree-degree correlations, and, in case of threshold models, for arbitrary threshold distribution. With our approach, we shift the perspective from the known branching process approximations to the iterative update of suitable probability distributions. Such distributions are key to capture cascade dynamics that involve possibly continuous quantities and that depend on the cascade history, e.g., if load is accumulated over time. As a proof of concept, we provide two examples: (a) Constant load models that cover many of the analytically tractable casacade models, and, as a highlight, (b) a fiber bundle model that was not tractable by branching process approximations before. Our derivations cover the whole cascade dynamics, not only their steady state. This allows us to include interventions in time or further model complexity in the analysis.

Influence of trust in the spreading of information

The understanding and prediction of information diffusion processes on networks is a major challenge in network theory with many implications in social sciences. Many theoretical advances occurred due to stochastic spreading models. Nevertheless, these stochastic models overlooked the influence of rational decisions on the outcome of the process. For instance, different levels of trust in acquaintances do play a role in information spreading, and actors may change their spreading decisions during the information diffusion process accordingly. Here, we study an information-spreading model in which the decision to transmit or not is based on trust. We explore the interplay between the propagation of information and the trust dynamics happening on a two-layer multiplex network. Actors' trustable or untrustable states are defined as accumulated cooperation or defection behaviors, respectively, in a Prisoner's Dilemma setup, and they are controlled by a memory span. The propagation of information is abstracted as a threshold model on the information-spreading layer, where the threshold depends on the trustability of agents. The analysis of the model is performed using a tree approximation and validated on homogeneous and heterogeneous networks. The results show that the memory of previous actions has a significant effect on the spreading of information. For example, the less memory that is considered, the higher is the diffusion. Information is highly promoted by the emergence of trustable acquaintances. These results provide insight into the effect of plausible biases on spreading dynamics in a multilevel networked system.

Local cascades induced global contagion: How heterogeneous thresholds, exogenous effects, and unconcerned behaviour govern online adoption spreading

Adoption of innovations, products or online services is commonly interpreted as a spreading process driven to large extent by social influence and conditioned by the needs and capacities of individuals. To model this process one usually introduces behavioural threshold mechanisms, which can give rise to the evolution of global cascades if the system satisfies a set of conditions. However, these models do not address temporal aspects of the emerging cascades, which in real systems may evolve through various pathways ranging from slow to rapid patterns. Here we fill this gap through the analysis and modelling of product adoption in the world’s largest voice over internet service, the social network of Skype. We provide empirical evidence about the heterogeneous distribution of fractional behavioural thresholds, which appears to be independent of the degree of adopting egos. We show that the structure of real-world adoption clusters is radically different from previous theoretical expectations, since vulnerable adoptions—induced by a single adopting neighbour—appear to be important only locally, while spontaneous adopters arriving at a constant rate and the involvement of unconcerned individuals govern the global emergence of social spreading.

Trend-driven information cascades on random networks

Threshold models of global cascades have been extensively used to model real-world collective behavior, such as the contagious spread of fads and the adoption of new technologies. A common property of those cascade models is that a vanishingly small seed fraction can spread to a finite fraction of an infinitely large network through local infections. In social and economic networks, however, individuals' behavior is often influenced not only by what their direct neighbors are doing, but also by what the majority of people are doing as a trend. A trend affects individuals' behavior while individuals' behavior creates a trend. To analyze such a complex interplay between local- and global-scale phenomena, I generalize the standard threshold model by introducing a type of node called global nodes (or trend followers), whose activation probability depends on a global-scale trend, specifically the percentage of activated nodes in the population. The model shows that global nodes play a role as accelerating cascades once a trend emerges while reducing the probability of a trend emerging. Global nodes thus either facilitate or inhibit cascades, suggesting that a moderate share of trend followers may maximize the average size of cascades.