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Stefano Battiston

Stefano Battiston
ETH Zurich | ETH Zürich · Department of Management, Technology, and Economics

About

147
Publications
64,658
Reads
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6,522
Citations
Additional affiliations
November 2013 - present
University of Zurich
Position
  • SNF Professor
August 2005 - September 2013
ETH Zurich
Position
  • Senior Researcher
Education
January 2001 - March 2004
Ecole Normale Supérieure de Paris
Field of study
  • Statistical Physics

Publications

Publications (147)
Article
We develop the first top-down method to estimate the greenness of financial portfolios, in terms of alignment to the EU Taxonomy for sustainable activities. We also develop a method to estimate, at the same time, the portfolio exposure to climate transition risk. We provide sector-level, standardized and transparent coefficients for both estimates,...
Article
We study the impact of the interplay between the structure of the financial network and market conditions on financial stability in the European banking system. We capture two channels of financial contagion. The first channel concerns direct interconnectedness, via a network of interbank loans, banks’ loans to other corporate and retail clients, a...
Preprint
This session will introduce the theme of the day. It will engage with leading experts in climate finance from academia, central banks and financial regulators in a stock-taking exercise to critically discuss international examples of progress in climate financial risk assessment and the challenges associated which are currently faced by investors a...
Article
Full-text available
As the total value of the global financial market outgrew the value of the real economy, financial institutions created a global web of interactions that embodies systemic risks. Understanding these networks requires new theoretical approaches and new tools for quantitative analysis. Statistical physics contributed significantly to this challenge b...
Article
Les deux économistes Stefano Battiston et Irene Monasterolo observent, dans une tribune au « Monde », que les anticipations des investisseurs peuvent aussi aller contre l’objectif de limitation du réchauffement climatique
Article
The financial system-the ecosystem of investors (e.g., banks, investment funds, insurance), markets, and instruments-is often considered to play an enabling role in climate mitigation pathways to a low-carbon transition (1). But it can also have a hampering role, e.g., if investors' perceptions of low risk from a missed transition and low opportuni...
Preprint
Full-text available
The field of Financial Networks is a paramount example of the novel applications of Statistical Physics that have made possible by the present data revolution. As the total value of the global financial market has vastly outgrown the value of the real economy, financial institutions on this planet have created a web of interactions whose size and t...
Article
Climate change has been recently recognised as a new source of risk for the financial system. Over the last years, several central banks and financial supervisors have recommended that investors and financial institutions need to assess their exposure to climate-related financial risks. Central banks and financial supervisors have also started desi...
Article
Full-text available
Climate change poses several risks to the value of financial assets and to financial stability. In this study, we estimate the exposure of the Austrian banking sector to climate risks that might arise from a disorderly transition to a carbon-neutral economy. To this end, we identify climate policy-relevant sectors (CPRSs), i.e. sectors which are pa...
Article
Full-text available
Over the last decades, both advanced and emerging economies have experienced the emergence of the phenomenon known as financialization, that, until some time ago, was generally considered beneficial for the economy. The 2007-2008 crisis and the severe post-crisis recession called into question the assumptions underlying the positive perception of t...
Article
We study how the practice of collateral rehypothecation impacts the generation of liquidity and the emergence of systemic liquidity risk, and how both depend on the structure of the financial network. We build a basic model where banks interact via chains of “repo” contracts (i.e. repurchasing agreements) and use their proprietary collateral or re-...
Chapter
Pandemics are disruptive events that have profound consequences for society and the economy. This volume aims to present an analysis of the economic impact of COVID-19 and its likely consequences for our future. This is achieved by drawing from the expertise of authors who specialise in a wide range of fields including fiscal and monetary policy, b...
Article
Full-text available
Abstract Networks of portfolio holdings exemplify how interdependence both between the agents and their assets can be a source of systemic vulnerability. We study a real-world holdings network and compare it with various alternative scenarios from randomization and rebalancing of the original investments. Scenarios generation relies on algorithms t...
Article
Full-text available
We introduce a general model for the balance‐sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the presence of uncertainty on banks' external assets. At the same time, it also provides a natural extension of clas...
Preprint
The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress, as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recogni...
Article
Full-text available
We study financial networks and reveal a new kind of systemic risk arising from what we call default ambiguity—that is, a situation where it is impossible to decide which banks are in default. Specifically, we study the clearing problem: given a network of banks interconnected by financial contracts, determine which banks are in default and what pe...
Article
Full-text available
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the actual risk by individual investors. We investigate the bipartite network of US mutual fund portfolios and th...
Article
We study the impact of the interplay between the structure of the financial network and market conditions on financial stability in the European banking system. We capture two channels of financial contagion. The first channel concerns direct interconnectedness, via a network of interbank loans, banks’ loans to other corporate and retail clients, a...
Article
Full-text available
Over the last decades, both advanced and emerging economies have experienced a striking increase in the intra-financial activity across different asset classes and increasingly complex contract types, leading to a far more complex financial system. Until the 2007-2008 crisis, the increased financial intensity and complexity was believed beneficial...
Conference Paper
The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recogniz...
Article
The role of development finance institutions in low‐income and emerging countries is fundamental to provide long‐term capital for investments in climate mitigation and adaptation. Nevertheless, development finance institutions still lack sound and transparent metrics to assess their projects' exposure to climate risks and their impact on global cli...
Book
Multiplex and Multilayer Networks is a collection of some of the results obtained in the new field of complex networks theory with respect to multilevel, multiplex, and interacting networks. The ever-increasing availability of data in fields ranging from computer science to urban systems, medicine, economics, and finance shows that networks that we...
Article
Full-text available
Creating a map of actors and their leanings is important for policy makers and stakeholders in the European Commission’s ‘Better Regulation Agenda’. We explore publicly available information about the European lobby organizations from the Transparency Register, and from the open public consultations in the area of Banking and Finance. We consider t...
Article
Building on ISIGrowth research, in this policy brief we present empirical evidence on the patterns ofincreasing financialization in the EU in the last two decades, an analysis of its possible adverseeffects on several objectives of the EU 2030 agenda, including inclusive growth, innovation,inequality and financial stability. We conclude by providin...
Article
We study how network structure affects the dynamics of collateral in presence of rehypothecation. We build a simple model wherein banks interact via chains of repo contracts and use their proprietary collateral or re-use the collateral obtained by other banks via reverse repos. In this framework, we show that total collateral volume and its velocit...
Article
Full-text available
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the actual risk diversification by individual investors. We investigate the bipartite network of US mutual fund p...
Article
Full-text available
Purpose This paper aims to explain the architecture and design choices of the exchange. Lykke is a FinTech company based in Zurich that has launched the global marketplace for all asset classes and instruments digitized on the blockchain. The authors discuss how the exchange will evolve over time. They explore the macroeconomic benefits of the new...
Article
The recent credit crisis of 2007/08 has raised a debate about the so-called knife-edge properties of financial markets. The paper contributes to the debate shedding light on the controversial relation between risk-diversification and financial stability. We model a financial network where assets held by borrowers to meet their obligations, include...
Article
We develop a framework to analyse the credit default swap (CDS) market as a network of risk transfers among counterparties. From a theoretical perspective, we introduce the notion of flow-of-risk and provide sufficient conditions for a bow-tie network architecture to endogenously emerge as a result of intermediation. This architecture shows three d...
Article
The urgency of estimating the impact of climate risks on the financial system is increasingly recognized among scholars and practitioners. By adopting a network approach to financial dependencies, we look at how climate policy risk might propagate through the financial system. We develop a network-based climate stress-test methodology and apply it...
Data
Supplementary Methods, Supplementary Figures, Supplementary References
Conference Paper
We consider the problem of clearing a system of interconnected banks that have been exposed to a shock on their assets. Eisenberg and Noe (2001) showed that when banks can only enter into simple debt contracts with each other, then a clearing vector of payments can be computed in polynomial time. In this paper, we show that the situation changes ra...
Article
We develop a framework to analyse the credit default swap (CDS) market as a network of risk transfers among counterparties. From a theoretical perspective, we introduce the notion of flow-of-risk and provide sufficient conditions for a bow-tie network architecture to endogenously emerge as a result of intermediation. This architecture shows three d...
Article
Financial networks have shown to be important in understanding systemic events in credit markets. In this paper, we investigate how the structure of those networks can affect the capacity of regulators to assess the level of systemic risk. We introduce a model to compute the individual and systemic probability of default in a system of banks connec...
Article
The interconnectedness of the financial system is one of the main factors contributing to systemic risk. The financial crisis has shown how the network of intrafinancial exposures may, in times of systemic distress, amplify initially small shocks. In this work, the authors build on the DebtRank methodology by introducing the notion of a network of...
Article
Full-text available
The practice of lobbying in the interest of economic or social groups plays an important role in the policy making process of most economies. While no data is available at this stage to examine the success of lobbies in exerting influence on specific policy issues, we perform a first systematic multi-layer network analysis of a large lobby registry...
Data
Supplementary Information of “The multiplex network of EU lobby organizations”. (PDF)
Article
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of contagion in financial networks. We develop a common framework encompassing several network contagion models a...
Article
Financial institutions form multilayer networks by engaging in contracts with each other and by holding exposures to common assets. As a result, the default probability of one institution depends on the default probability of all of the other institutions in the network. Here, we show how small errors on the knowledge of the network of contracts ca...
Article
We develop a model that captures, at the same time, the temporal dynamics of single-firm credit risk and the contagion across banks via a network of obligations and common assets. In particular, we enrich the continuous-time modelling approach of default by accounting explicitly for the procyclical loop between asset prices and leverage. Contagion...
Article
Full-text available
We introduce a network valuation model (hereafter NEVA) for the ex-ante valuation of claims among financial institutions connected in a network of liabilities. Similar to previous work, the new framework allows to endogenously determine the recovery rate on all claims upon the default of some institutions. In addition, it also allows to account for...
Article
The interconnectedness of the financial system is one of the main factors contributing to systemic risk. The financial crisis has shown how the network of intrafinancial exposures may, in times of systemic distress, amplify initially small shocks. In this work, the authors build on the DebtRank methodology by introducing the notion of a network of...
Article
Full-text available
There is growing consensus that processes of market integration and risk diversification may come at the price of more systemic risk. Indeed, financial institutions are interconnected in a network of contracts where distress can either be amplified or dampened. However, a mathematical understanding of instability in relation to the network topology...
Chapter
In this Chapter, we describe the phenomenology of multilevel financial networks. Network analysis represents a useful tool for the analysis of financial systems, allowing, in particular, for a better understanding of the mechanics of systemic distress. However, the level of complexity reached by the financial system, coupled with the linkages arisi...
Article
Financial networks have shown to be important in understanding systemic events in credit markets. In this paper, we investigate how the structure of those networks can affect the capacity of regulators to assess the level of systemic risk. We introduce a model to compute the individual and systemic probability of default in a system of banks connec...
Book
This work contains a stringent selection of extended contributions presented at the meeting of 2014 and its satellite meetings, reflecting scope, diversity and richness of research areas in the field, both fundamental and applied. The ECCS meeting, held under the patronage of the Complex Systems Society, is an annual event that has become the leadi...
Article
Full-text available
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical "microscopic" theory of instability for financial networks by iterating balance sheet identities of individual bank...
Conference Paper
Full-text available
A major problem in the study of complex socioeconomic systems is represented by privacy issues - that can put severe limitations on the amount of accessible information, forcing to build models on the basis of incomplete knowledge. In this paper we investigate a novel method to reconstruct global topological properties of a complex network starting...
Article
We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, the framework allows to estimate and disentang...
Article
The practice of lobbying in the interest of economic or social groups plays an important role in the policy making process of most economies. We carry out a multi-level network analysis of the relations among lobbying organizations in the EU transparency register, focusing on the domain of finance and climate. We find that the network centrality of...
Article
Full-text available
Credit Default Swaps (CDS) spreads should reflect default risk of the underlying corporate debt. Actually, it has been recognized that CDS spread time series did not anticipate but only followed the increasing risk of default before the financial crisis. In principle, the network of correlations among CDS spread time series could at least display s...
Article
The financial system performs vital functions for the world economy. Very often one of more aspect of this system can be described by means of a complex graph. In this chapter under the generic name of financial networks we indicate several different systems all related to the world of finance.
Article
Full-text available
We investigate the community structure of the global ownership network of transnational corporations. We find a pronounced organization in communities that cannot be explained by randomness. Despite the global character of this network, communities reflect first of all the geographical location of firms, while the industrial sector plays only a mar...
Chapter
A major problem in the study of complex socioeconomic systems is represented by privacy issues—that can put severe limitations on the amount of accessible information, forcing to build models on the basis of incomplete knowledge. In this paper we investigate a novel method to reconstruct global topological properties of a complex network starting f...
Article
Full-text available
The recent crisis has brought to the fore a crucial question that remains still open: what would be the optimal architecture of financial systems? We investigate the stability of several benchmark topologies in a simple default cascading dynamics in bank networks. We analyze the interplay of several crucial drivers, i.e., network topology, banks' c...