Complexity and Networks in Economics and Finance

Begeleiding : Prof. Koen Schoors (promotor, Faculteit Economie en Bedrijfskunde), Jan Ryckebusch (promotor), Benjamin Vandermarliere, Andres Belaza, Milan van den Heuvel, Ken Bastiaensen
General context
One of fhe most puzzling things about the financial crisis of 2008 is that it was caused by a relatively small group of financial products. The subprime exposure, which was often believed to be rather marginal, gave rise to widespread problems, and started a domino effect which made the entire financial system to topple. In the physicist's jargon, this means that a local perturbation affected the system as a whole. This was possible because over the years, the financial system grew more and more complex. Thereby, all agents in the financial system are highly interconnected very by means of unrecognized links. Policy makers tried to stabilize the system by devising rules for each individual player. In physics it is well known that "The whole is most often more than the sum of its parts", and systemic risk is also at play in the highly interconnected financial system.
The financial calamities of 2008 has boosted a lot research into the complexity of interbank networks in particular, and in economics and finance in general. This field is highly interdisciplinary drawing on big data manipulation, advanced statistical analyses, computational sciences, finance, game theory, network theory and complexity science. We propose two master's thesis subjects in a timely and very exciting field of interdisciplinary Physics.

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Subject 1: Controllability in interbank networks
Coaches and contact persons: Milan Van den Heuvel, Benjamin Vandermarliere, Jan Ryckebusch (promotor)

The application of network theory to interbank systems already resulted in major advances in our understanding about their topology, interaction dynamics, and growth. A major issue is the endeavour to steer the evolution of the banking system in the direction of optimized control. Thereby, one aims at defining the rules of the operation of the interbank credit system such that it evolves in a certain direction.
The master's thesis will address the issue of structural controllability of interbank credit networks under different conditions. Using principles of network theory one can identify the nodes which need to be controlled in order to achieve a status whereby one can drive the network from an initial state to a selected final state. Thereby, it is essential to possess an effective method or algorithm to identify the driver nodes at each instant of time.
Controllability in network science is a relatively new theory. After having mastered the concept of controllablity, the student will study a version of the CRISIS agent-based interbank model. She/he will analyse the time series of the evolution of the interbank system under different scenarios. In particular, a study will be made of the connection between controllability and the underlying dynamics of the simulated network. The concept of control very much hinges on the (non)existence of a link between different nodes in the network. Traditionally, interactions between nodes are aggregated into a single network layer. In practice, interactions can adopt very different forms and some interactions may be more effective than others to gain control of the nodes. To this end, one has developed the concepts of multilayer networks ( A recent paper on the topic of Multilayer Networks ). In the context of the research for the master's thesis, it will be investigated whether the theory of Multilayer Networks provides a superior way of defining the controllability of the system.

Subject 2: Human mobility in a virtual world

Coaches and contact persons: Andres Belaza and Jan Ryckebusch (promotor)

The motion of people at different spatiotemporal scales play a key role in many fields. An improved knowledge of the patterns in the motions of people, is key information for the optimization of public transport routes, or for the design of measures that keep the propagation of the flu under control. People's motion inside and between urban areas present different behavior. In an urban environment, people go to work to industrial areas or the city center and return home in the evening, presenting daily cycles that are less common in the motion between cities.
These days, the cell phone network, creates a high-quality dataset on human mobility. This data, however, is highly personal and the phone companies protect this data. Video games have been used before as a proxy for real-world behavior in studies in economy and sociology.

In the context of the proposed MSc thesis subject, the student will analyze the motion of the different players in a virtual world (EVE online), with similar techniques that are used for urban mobility and try to figure out which kind of dynamics play an essential role. For this thesis, strong programming skills and a knack for data analysis are be highly recommended.

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Subject 3: Structure and evolution of the corporate ownership network

Coach and contact person: Benjamin Vandermarliere

The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only static yearly snapshots of this ownership network have been studied (Ref. [1]). In this master’s thesis, we will expand to a dynamic view of this ownership network by leveraging a unique data set covering a 20-year period.
By using state-of-the-art techniques to capture structures and their evolution in temporal networks (Ref. [2]) we will address topical questions like: “Did the 2008 financial crisis lead to a higher concentration of corporate control into fewer people hands?” “How do foreign investors get entangled over time into the companies of a country?”
The topic requires a healthy interest in finance and economics, data analysis, machine learning, and network theory (statistical physics).

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