**Liaisons Dangereuses:****Increasing Connectivity, Risk Sharing, and Systemic Risk**-This paper by Battiston et al has all of the ingredients that I am interested in studying (specifically credit networks and their relationship to systemic risk). An excellent slide deck that covers the key concepts and conclusions of the paper can be found here. In their model, as the network becomes more dense (i.e., more inter-connected) individual risk decreases because more connections allow each individual to diversify idiosyncratic shocks. However, increasing network density also increases the ability of negative shocks to propogate through the entire network (instead of being locally contained) and thus leads to an increase in systemic risk.**Financially Constrained Fluctuations in an Evolving Network Economy**-This paper by Delli Gatti et al is a nice model of credit networks between firms and banks. It includes both inside or trade credit as well as outside or bank credit. The interaction effects of the firms financial positions generates business cycles (similar to Minsky's financial instability hypothesis). Model simulations also replicates power law distribution of firm sizes and Laplace distribution of firms' growth rates.**Econometric Measures of Systemic Risk in the Finance and Insurance Sectors**-This paper by Billio et al suggests some possible practical applications of the network approach to systemic risk analysis.

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## Thursday, August 19, 2010

### More on my PhD Research Agenda...

The following papers are going to form my point of departure for my PhD research:

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