Description:

Speaker:

Irena Vodenska, Associate Professor in Finance, Director, Finance Programs, Metropolitan College, Boston University

Title:

A bird’s-eye view into the origin of systemic risk: Financial Institutions, Sovereign Debt, and Public Health and Policy

Abstract:

As economic entities become increasingly interconnected, shocks in financial and economic networks can provoke significant cascading failures throughout the system. To study systemic risk, we model financial institutions' relationships, economic dependencies, and production flows to propose a cascading failure model describing the risk propagation process during crises. We find that our model efficiently identifies a significant portion of the failed banks reported by the Federal Deposit Insurance Corporation during the Global Financial Crisis of 2008. We also study the European sovereign debt crisis of 2009-2012 and observe that the results closely match real-world events (e.g., the high risk of Greek sovereign bonds and Greek banks' distress). We propose an institutional, systemic importance ranking, BankRank, for the financial institutions analyzed in the European bank study to assess individual banks' contribution to the overall systemic risk. Finally, we propose a dynamic cascade model to investigate the systemic risk posed by sector level industries within the U.S. inter-industry network. We then use this model to study the effect of the disruption presented by COVID-19 during 2020 on the U.S. economy. We impose an initial shock that disrupts one or more industries' production capacity and calculates the propagation of production shortage with a modified Cobb-Douglas production function. In the case of COVID-19, the initial shock reflects the loss of labor between March and April 2020, as reported by the Bureau of Labor Statistics. These studies suggest that the cascading failure models could be useful for systemic risk stress testing for financial and economic systems. The models could become complementary to existing stress tests and scenario analysis, incorporating the contribution of the interconnectivity of the banks, governments, and industries to systemic risk in time-dependent networks.

Speaker Bio:

Irena Vodenska is an associate professor of finance and director of finance programs at Boston University’s Metropolitan College. Her research focuses on network theory and complexity science in macroeconomics. She conducts a theoretical and applied interdisciplinary research using quantitative approaches for modeling interdependencies of financial networks, banking system dynamics, and global financial crises. More specifically, Vodenska’s research focuses on modeling of early warning indicators and systemic risk propagation throughout interconnected financial and economic networks. She also studies the effects of news announcement on financial markets, corporations, financial institutions, and related global economic systems. She uses neural networks and deep learning methodologies for natural language processing to text mine important factors affecting corporate performance and global economic trends. Prof. Vodenska teaches Investment Analysis and Portfolio Management, International Finance and Trade, Financial Regulation and Ethics, and Derivatives Securities and Markets at Boston University. Vodenska holds a Ph.D. in Econophysics (Statistical Finance) from Boston University, MBA from Owen Graduate School of Management at Vanderbilt University and BS in Computer Information Systems from the University of Belgrade. She is also a Chartered Financial Analyst (CFA) charter holder. As a principal investigator (PI) for Boston University, she has won interdisciplinary research grants awarded by the European Commission (EU), Network Science Division of the US Army Research Office, and the National Science Foundation (US).

Webinar:

Webinar link: https://northwestern.zoom.us/j/94202105939
Passcode: nico
ID: 942 0210 5939

About the Speaker Series:

Wednesdays@NICO is a vibrant weekly seminar series focusing broadly on the topics of complex systems and data science. It brings together attendees ranging from graduate students to senior faculty who span all of the schools across Northwestern, from applied math to sociology to biology and every discipline in-between. Please visit: https://bit.ly/WedatNICO for information on future speakers.