The 2008 financial crisis has highlighted major limitations in the modelling of financial and economic systems. However, an emerging field of research at the frontiers of both physics and economics aims to provide a more fundamental understanding of economic networks, as well as practical insights for policymakers. In this Nature Physics Focus, physicists and economists consider the state-of-the-art in the application of network science to finance.
Net gains -p119
Physics — and physicists — have had much to contribute to economic and finance. Now the science of complex networks sets a way forward to understanding and managing the complex financial networks of the world's markets.
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Network opportunity -pp121 – 122
Michele Catanzaro and Mark Buchanan
Our developing scientific understanding of complex networks is being usefully applied in a wide set of financial systems. What we've learned from the 2008 crisis could be the basis of better management of the economy — and a means to avert future disaster.
Complex derivatives -pp123 – 125
Stefano Battiston, Guido Caldarelli, Co-Pierre Georg, Robert May and Joseph Stiglitz
The intrinsic complexity of the financial derivatives market has emerged as both an incentive to engage in it, and a key source of its inherent instability. Regulators now faced with the challenge of taming this beast may find inspiration in the budding science of complex systems.
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Reconstructing a credit network -pp125 – 126
Guido Caldarelli, Alessandro Chessa, Andrea Gabrielli, Fabio Pammolli and Michelangelo Puliga
The science of complex networks can be usefully applied in finance, although there is limited data available with which to develop our understanding. All is not lost, however: ideas from statistical physics make it possible to reconstruct details of a financial network from partial sets of information.
Reconstructing a credit network
The power to control -pp126 – 128
Marco Galbiati, Danilo Delpini & Stefano Battiston
Understanding something of the complexity of a financial network is one thing, influencing the behaviour of that system is another. But new tools from network science define a notion of 'controllability' that, coupled with 'centrality', could prove useful to economists and financial regulators.