Identification of Critical Nodes and Links in Financial Networks With Intermediation and Electronic Transactions

30 Pages Posted: 30 Mar 2007

See all articles by Anna Nagurney

Anna Nagurney

University of Massachusetts Amherst - Isenberg School of Management - Department of Operations and Information Management

Qiang Qiang

Pennsylvania State University - Great Valley School of Graduate Professional Studies

Date Written: August 20, 2007

Abstract

In this paper, we propose a network performance/efficiency measure for the evaluation of financial networks with intermediation. The measure captures risk, transaction cost, price, transaction flow, revenue, and demand information in the context of the decision-makers' behavior in multitiered financial networks that also allow for electronic transactions. The measure is then utilized to define the importance of a financial network component, that is, a node or a link, or a combination of nodes and links. Numerical examples are provided in which the efficiency of the financial network is computed along with the importance ranking of the nodes and links. The results in this paper can be used to assess which nodes and links in financial networks are the most vulnerable in the sense that their removal will impact the efficiency of the network in the most significant way. Hence, the results in this paper have relevance to national security as well as implications for the insurance industry.

Keywords: financial networks, financial intermediation, risk management, portfolio optimization, complx networks, supernetworks, critical infrastructure networks, electronic finance, network performance, network security, network vulnerability, network disruptions

JEL Classification: C61, C63, L1, G10, G20, G22

Suggested Citation

Nagurney, Anna and Qiang, Qiang, Identification of Critical Nodes and Links in Financial Networks With Intermediation and Electronic Transactions (August 20, 2007). Available at SSRN: https://ssrn.com/abstract=976251 or http://dx.doi.org/10.2139/ssrn.976251

Anna Nagurney (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management - Department of Operations and Information Management ( email )

Amherst, MA 01003-4910
United States

Qiang Qiang

Pennsylvania State University - Great Valley School of Graduate Professional Studies ( email )

30 E. Swedesford Rd
Malvern, PA 19355
United States

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