Page - 6 - in options, Volume winter 2015/2016

research news 6 options + winter 2015/2016 www.iiasa.ac.at iiasa research Risk of financial crisis underestimated The risk of financial crisis is substantially higher than previously estimated, according to new IIASA research that accounts for multiple levels of interconnectedness in the financial system. The study, published in the journal Financial Stability, introduced a new method that allows researchers to estimate the systemic risk that results from multiple layers of connectivity. “Systemic risk is the risk that a significant part of the financial system stops working—that it cannot perform its function,” says IIASA researcher Sebastian Poledna, who led the study. For example if a major bank fails, it could trigger the failure of other financial institutions that are linked to it through loans, derivatives, securities, and foreign exchange exposure. The fear of such contagion is what drives governments to bail out banks. In the study, Poledna and fellow IIASA researcher Stefan Thurner used data from the Mexican banking system to examine four layers of connectivity between banks: interbank loans, derivatives, securities, and foreign exchange. “Previous studies of systemic risk had just examined one layer of this system, the  interbank loans,” says Poledna. By including the other layers, Poledna and colleagues found that the actual risk was 90% higher than the risk just from interbank loans. The researchers also found that systemic risk levels are about four times higher today than before the financial crisis—yet these risks are not reflected in the market-based risk measures currently in use. “Banks today are far more connected than they were before the financial crisis,” explains Poledna. “This means that in a new crisis, the public costs for Mexico could be four times higher than those experienced in the last crisis.” KL Further info Poledna S, Molina-Borboa JL, Martinez-Jaramillo S, van der Leij M, Thurner S (2015). The  multi-layer network nature of systemic risk and its implications for the costs of financial crises. Financial  Stability 20:70–81 [doi:10.1016/j.jfs.2015.08.001]. Sebastian Poledna poledna@iiasa.ac.at § Stefan Thurner thurner@iiasa.ac.at Systems analysis for  global  transformations A new special issue of the journal Technological Forecasting and Social Change serves as a follow‑up to the IIASA  40th  Anniversary Conference held in 2012, "Worlds Within Reach: From Science to Policy." Studies in the journal focus on two major themes: dealing with uncertainty in integrated analyses of human–environment systems; and social, technical, and institutional transformations in response to  global sustainability challenges. www.iiasa.ac.at/news/tsfc-15 Handbook for clean energy The world’s energy supply is a complex system, linked to climate change, the environment, and poverty. The Handbook of  Clean Energy Systems, a new six‑volume reference work containing five chapters on IIASA research, provides a comprehensive view of current research on clean energy, ranging from technology for different types of renewable energy to questions of energy storage, and long term sustainability. www.iiasa.ac.at/news/cleanenergy-15 An age of golden aging? A new World Bank report, which relies on IIASA research, examines demographic trends that lead to population aging and related economic challenges and opportunities. It  suggests that if policymakers facilitate behavioral adaptation to the emerging trends, Europe and Central Asia could one  day enter a  period of “Golden Aging,” in  which all people can live long, healthy, active, and prosperous  lives. www.iiasa.ac.at/news/goldenage-15 Climate change vs. food security IIASA researchers contributed to a major new  book, published by the Food and Agriculture Organization of the United Nations (FAO), which assesses the links between climate change and food security. IIASA researcher Petr  Havlík led the institute’s contribution to the book, a chapter entitled, “Global climate change, food supply and livestock production systems: A bioeconomic analysis.” The analysis by IIASA researchers is  the first one to consider in detail climate change impacts on the livestock sector. In  particular, the paper discusses the potential role that restructuring agricultural production systems could play in adaptation. www.iiasa.ac.at/news/faobook-15 (a) (b) (c) (e) (d) deri secu FX DL comb Ri≥0.2 Ri<.0.2 Ri<.15 Ri<.1 Ri<.05 Ri<.01 Ri<.005 Ri<.0025 Banking systems are linked through multiple types  of interactions, or layers. This  figure shows the multi-layer network of the Mexican banking system analyzed in  the  study. Source: Poledna et al. (2015)