Financial Network Analyzer v1.0 beta released

By Kimmo | Published: December 28, 2009

After a little over a month of development, beta version 1.0 of the tool is now ready. It is an open source project sponsored by Norges Bank. The code is available at Google Code (get in touch with me to participate) and the documentation on Google docs. Currently the tool has a command line user interface and its main features include:

  • Construction of networks from payment/trade data where an arc (link) is established if a payment/trade takes place between the banks. Further payments/trades add to the weight of the arc. Aggregation interval can be based on the number of payments/trades, on their value or on their timing (e.g. daily networks)
  • The networks generated can be edited (transposed, made symmetric) and vertices (nodes) can be dropped based on any of their properties that are calculated (e.g. all nodes without outgoing links or smaller than some threshold value)
  • A number of statistics can be calculated for the vertices and arcs, e.g. betweenness centrality, random walk betweenness, eigenvector centrality, PageRank, HITS, average shortest paths, reciprocity, eccentricity, strength, loops and degree. Strong and weak components of the network can be identified.
  • Networks, vertices and arcs and their properties can be viewed on screen
  • Networks can be saved as vertex/arclists or in Pajek format to f ile for further analysis.

To install the tool simply download the latest version and copy the contents of the .zip file to some directory. You start the program from start.bat. You can try that it works by typing:

run -file data/script.txt

it runs script.txt file (in /data folder) which contains some commands to build and analyze networks created from example data (also under the /data folder). Please let me know of any bugs or needs for improvement.

For other similar tools, see the Social network analysis software article on wikipedia

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Wrapping up 2009

By Kimmo | Published: December 19, 2009

The year is coming to an end and it a good time to look back at how this blog evolved during the year. I started it in March 2008 mainly as my personal blog but as I noticed that most of the articles covered financial networks in one sense or another, and that there was no other blog on the emerging area of financial networks research – I redesigned it during this year to what you see now. I also set up a LinkedId group to bring people working in the area together and for disseminating information on new research or conferences in the area. Please join if you are at LinkedIn.

Of course it is also interesting to know if anyone is reading this blog? According to Google Analytics installed on the site there is quite a steady readership of 80-100 unique visitors each week. Between 15 November and 15 December there were a total of 605 visits and 1667 page views. I think this is pretty good and motivates me to do an even better job in 2010. The below map shows the geographic distribution of the visitors.

Merry Christmas/Holidays and a Happy New Year to all the readers!

fna-blog-stats

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Workshop on Financial Networks and Risk Assessment

By Kimmo | Published: December 18, 2009

MITACS is organizing a Workshop on Financial Networks and Risk Assessment, taking place in Toronto from May 19 to May 21, 2010. The workshop is part of the MITACS International Focus Period on Advances in Network Analysis and its Applications and will be attended by 30-50 specialists in the field (from academia and business) as well as students. The 3 day event will consist of plenary talks, tutorials and contributed talks.

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Financial Network Analyzer project begins

By Kimmo | Published: November 24, 2009

I started a project with Norges Bank to develop an easy and comprehensive tool specifically geared towards creating and analysing financial networks constructed of trade or payment data. Its is an open source project and the program and code will be available at fna.sourceforge.net already during the development phase. The first phase of development for a command line utility is expected to be completed within this year. Specifications for the project are available as a Google document. All feedback and contributions to the project are welcomed.

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SNA conferences for 2010

By Kimmo | Published: November 11, 2009

A few conference announcements from INSNA mailing list:

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The Feasibility of Systemic Risk Measurement

By Kimmo | Published: November 3, 2009

A testimony by Andrew Lo for the U.S. House of Representatives Financial Services Committee for its hearing on systemic risk regulation, held October 29, 2009. It proposes two major measures that could alleviate the next big financial crisis.

First, new legislation that provides more transparency on a confidential basis to regulators on financial institutions activities. This would allow measuring systemic risk using a variety of methods such as developing "network maps".

Second, establishing a Capital Markets Safety Board” (CMSB) devoted to measuring, tracking, and investigating systemic risk events. The board would manage the related data and analyse every financial wreckage in a similar manner as National Transportation Safety Board (NTSB) examines e.g. ariplane crashes.

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Informational Properties of Trading Networks

By Kimmo | Published: November 3, 2009

There is a new interesting paper "On the Informational Properties of Trading Networks" by Adamic, Brunetti Harris and Kirilenko using transaction level data for all regular transactions in September 2008 E-mini S&P 500 futures contracts.

They construct networks from executed trades and then look at the structure of these networks and relate them to returns, volatility, volume, and duration. Interestingly they find that assortativity, low clustering coefficient and connectedness are positively related to returns and volume and negatively related to duration and volatility. In contrast, topologies with centralization and assortativity close to zero, high transitivity and high connectedness are associated with average returns and volatility, and positively related to volume and duration.

They construct networks from executed trades and then then look at the structure of these networks and related them to returns, volatility, volume, and duration of the trades.
. Interestingly they find that assortativity, low clustering coefficient and connectedness–are positively related to returns and volume and negatively related to duration and volatility. In contrast,
topologies with centralization and assortativity close to zero, high transitivity and high connectedness–are associated with average returns and volatility, and positively related to volume and duration.
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ECB workshop on “Recent advances in modelling systemic risk using network analysis”

By Kimmo | Published: October 9, 2009

European Central Bank (ECB) organized a workshop with the above title last Monday, 5th of October. It was the first event of this scale gathering researchers applying network theory and network analysis on banking, financial stability and systemic risk topics. The introductory remarks to the workshop were given by Gertrude Tumpel-Gugerell, Member of the ECB’s Executive Board.

I provided an introduction to network theory and financial network analysis entitled “Is network theory the best hope for regulating systemic risk?“ in which I developed topics of an earlier post with the same title: How to measure the systemic importance of a bank, can regulators promote safer financial topologies and is it possible to devise early-warning indicators from real-time transaction data?

Sheri Markose presented a working paper “Too interconnected to fail” where she, Simone Giansante and colleagues do stress tests on US the Credit default swaps (CDS) market. The paper uses a multi-agent simulator developed for this purpose. A demo version of the simulator is available on the above link as well.

Olli Castren (ECB) presented some novel work with Ilja Kavonius (ECB) modeling contagion across sectors of the economy using contingent claims analysis and flow of funds data. The paper “Balance sheet contagion and the transmission of risk in the euro area financial system” was recently published in the ECB Financial Stability Review. The presentation is also available.

NEW: These and other papers and presentations of the workshop are summarized in the ECB publication “Recent advances in modelling systemic risk using network analysis” (7 January 2010). See also the press release.

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European Systemic Risk Board to be established

By Kimmo | Published: September 23, 2009

A proposal for a new EU institution, European Systemic Risk Board,  was published on 23 September 2009. The proposed body will have the mandate to map financial risks and their concentration at the system level for the macro-prudential supervision of systemic stability. European Union central banks will have a prominent role in it and the Secretariat of the ESRB will be entrusted to the European Central Bank. A press release from the same date explains the functioning of the new body in more detail.

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Receipt reactive gross settlement simulator

By Kimmo | Published: September 13, 2009

The Receipt Reactive Gross Settlement (RRGS) method was proposed by Jamie McAndrews in Johnson-McAndrews and Soramaki (2004) as a new, incentive compatible liquidity saving mechanism. The basic idea of RRGS is that banks are sure to use only incoming funds to settle their less urgent payments. Each bank has the incentive to submit payments to the RRGS queue as costly liquidity is consumed only when the bank receives funds from other banks.

This simulator allows simulations of one version of RRGS with historical payment data. It is easy to use and efficient, being able to simulate a day with half a million payments in less than 60 seconds. The fast speed of the simulations and quick set-up allows one to test many alternative scenarios easily.

rrgssimulator1.3

Read the rest of the entry for instructions on downloading and using this application. You are welcome to get in touch with me for any questions.

Read More »

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  • This blog is intended as a focal point for financial network analysis. The analysis of financial networks is a new and growing field that enhances our understanding of the structure of the financial web through cartography and modelling. Please sign up at the LinkedIn group or contact me for more information.
     

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