Northwestern Events Calendar


WED@NICO WEBINAR: Irena Vodenska, Boston University

Irena Vodenska

When: Wednesday, January 27, 2021
12:00 PM - 1:00 PM Central

Where: Online

Audience: Faculty/Staff - Student - Public - Post Docs/Docs - Graduate Students

Cost: Free

Contact: Meghan Stagl   847.491.2527

Group: Northwestern Institute on Complex Systems (NICO)

Category: Academic, Lectures & Meetings



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


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


As economic entities become increasingly interconnected, a shock in a financial network can provoke significant cascading failures throughout the system. To study the systemic risk of financial systems, we create a bi-partite banking network model composed of banks and bank assets and propose a cascading failure model to describe the risk propagation process during crises. We empirically test the model with 2007 US commercial banks balance sheet data and compare the model prediction of the failed banks with the real failed banks after 2007. We find that our model efficiently identifies a significant portion of the actual failed banks reported by Federal Deposit Insurance Corporation. The results suggest that this model could be useful for systemic risk stress testing for financial systems. The model also identifies that commercial rather than residential real estate assets are major culprits for the failure of over 350 US commercial banks during 2008-2011.

We additionally propose a dynamic model for systemic risk using a bipartite network of banks and assets in which the weight of links and node attributes vary over time. Using market data and bank asset holdings, we can estimate a single parameter as an indicator of the stability of the financial system. We apply the model to the European sovereign debt crisis and observe that the results closely match real-world events (e.g., the high risk of Greek sovereign bonds and the distress of Greek banks). Our model could become complementary to existing stress tests, incorporating the contribution of interconnectivity of the banks to systemic risk in time-dependent networks. Moreover, we propose an institutional systemic importance ranking, BankRank, for the financial institutions analyzed in this study to assess the contribution of individual banks 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 on the U.S. economy. We construct a weighted digraph G = (V, E, W ) using the industry-by-industry total requirements table for the year 2018, provided by the Bureau of Economic Analysis. In this graph, the nodes Vi represent sector level industries, an edge Eij represent a commodity flow from industry i to industry j, and a weight Wij captures the value of this commodity. We impose an initial shock that disrupts the production capacity of one or more industries and calculate the propagation of production shortage with a modified Cobb-Douglas production function. In the case of COVID-19, the initial shock is modeled on the loss of labor between March and April 2020, as reported by the Bureau of Labor Statistics. The industries within the network are assigned a resilience “r“ that determines the ability of an industry to absorb input losses, such that if the rate of input loss exceeds the resilience r, the industry fails and its outputs go to zero. We observe a critical resilience rc, such that below this critical value the network experiences a catastrophic cascade resulting in total network collapse.

Speaker Bio:

Irena Vodenska is 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 theoretical and applied interdisciplinary research using quantitative approaches for modeling interdependences of financial networks, banking system dynamics, and global financial crises. She holds a PhD in econophysics (statistical finance) from Boston University, an MBA from Owen Graduate School of Management at Vanderbilt University, and a BS in computer information systems from the University of Belgrade.


Webinar link:
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: for information on future speakers.

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