Focus

Complex networks in finance

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.

Top

Editorial

Net gains p119

doi:10.1038/nphys2588

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.


Top

Commentaries

Network opportunity pp121 – 122

Michele Catanzaro and Mark Buchanan

doi:10.1038/nphys2570

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

doi:10.1038/nphys2575

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.

Reconstructing a credit network pp125 – 126

Guido Caldarelli, Alessandro Chessa, Andrea Gabrielli, Fabio Pammolli and Michelangelo Puliga

doi:10.1038/nphys2580

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.

The power to control pp126 – 128

Marco Galbiati, Danilo Delpini & Stefano Battiston

doi:10.1038/nphys2581

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.


Top

From the archives

Top

Nature Physics Insight

Complexity

In many large ensembles, the property of the system as a whole cannot be understood from studying the individual entities alone — these ensembles can be made up by neurons in the brain, transport users in traffic networks or data packages in the Internet. The past decade has seen important progress in our fundamental understanding of what such seemingly disparate 'complex systems' have in common; some of these advances are surveyed here.

Editorial

No man is an island

doi:10.1038/nphys1162

The financial crisis underlines the need for new economic models – models that can only be built by following a truly interdisciplinary approach.


Top

Commentary

Economics crisis

Thomas Lux & Frank Westerhoff

doi:10.1038/nphys1163

Economic theory failed to envisage even the possibility of a financial crisis like the present one. A new foundation is needed that takes into account the interplay between heterogeneous agents.


Top

Thesis

Gamble with time

Mark Buchanan

doi:10.1038/nphys2520

"Probabilistic thinking has gone awry and stands in need of correction."

It's a (stylized) fact!

Mark Buchanan

doi:10.1038/nphys2191

"Theorists should work from "a stylized view of the facts" and "concentrate on broad tendencies"."

The value of the future

Mark Buchanan

doi:10.1038/nphys2039

"The best analyses of the most pressing problems hinge almost entirely on arbitrary techniques for discounting the future."

Waiting for the maths

Mark Buchanan

doi:10.1038/nphys1443

"Physicists may well contribute by improving the richness of the mathematics that economists use."

A little more conversation

Mark Buchanan

doi:10.1038/nphys1059

"A real convergence of the economics and physics cultures still seems remote, yet there are encouraging signs..."


Extra navigation

naturejobs

ADVERTISEMENT