The hyperbolic geometry of financial networks

Abstract Based on data from the European banking stress tests of 2014, 2016 and the transparency exercise of 2018 we construct networks of European banks and demonstrate that the latent geometry of these financial networks can be well-represented by geometry of negative curvature, i.e., by hyperboli...

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Autores principales:	Martin Keller-Ressel, Stephanie Nargang
Formato:	article
Lenguaje:	EN
Publicado:	Nature Portfolio 2021
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/5d296847ad2447c69558f4e3dcd97927
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spelling	oai:doaj.org-article:5d296847ad2447c69558f4e3dcd979272021-12-02T13:35:03ZThe hyperbolic geometry of financial networks10.1038/s41598-021-83328-42045-2322https://doaj.org/article/5d296847ad2447c69558f4e3dcd979272021-02-01T00:00:00Zhttps://doi.org/10.1038/s41598-021-83328-4https://doaj.org/toc/2045-2322Abstract Based on data from the European banking stress tests of 2014, 2016 and the transparency exercise of 2018 we construct networks of European banks and demonstrate that the latent geometry of these financial networks can be well-represented by geometry of negative curvature, i.e., by hyperbolic geometry. Using two different hyperbolic embedding methods, hydra+ and Mercator, this allows us to connect the network structure to the popularity-vs-similarity model of Papdopoulos et al., which is based on the Poincaré disc model of hyperbolic geometry. We show that the latent dimensions of ‘popularity’ and ‘similarity’ in this model are strongly associated to systemic importance and to geographic subdivisions of the banking system, independent of the embedding method that is used. In a longitudinal analysis over the time span from 2014 to 2018 we find that the systemic importance of individual banks has remained rather stable, while the peripheral community structure exhibits more (but still moderate) variability. Based on our analysis we argue that embeddings into hyperbolic geometry can be used to monitor structural change in financial networks and are able to distinguish between changes in systemic relevance and other (peripheral) structural changes.Martin Keller-ResselStephanie NargangNature PortfolioarticleMedicineRScienceQENScientific Reports, Vol 11, Iss 1, Pp 1-12 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q Martin Keller-Ressel Stephanie Nargang The hyperbolic geometry of financial networks
description	Abstract Based on data from the European banking stress tests of 2014, 2016 and the transparency exercise of 2018 we construct networks of European banks and demonstrate that the latent geometry of these financial networks can be well-represented by geometry of negative curvature, i.e., by hyperbolic geometry. Using two different hyperbolic embedding methods, hydra+ and Mercator, this allows us to connect the network structure to the popularity-vs-similarity model of Papdopoulos et al., which is based on the Poincaré disc model of hyperbolic geometry. We show that the latent dimensions of ‘popularity’ and ‘similarity’ in this model are strongly associated to systemic importance and to geographic subdivisions of the banking system, independent of the embedding method that is used. In a longitudinal analysis over the time span from 2014 to 2018 we find that the systemic importance of individual banks has remained rather stable, while the peripheral community structure exhibits more (but still moderate) variability. Based on our analysis we argue that embeddings into hyperbolic geometry can be used to monitor structural change in financial networks and are able to distinguish between changes in systemic relevance and other (peripheral) structural changes.
format	article
author	Martin Keller-Ressel Stephanie Nargang
author_facet	Martin Keller-Ressel Stephanie Nargang
author_sort	Martin Keller-Ressel
title	The hyperbolic geometry of financial networks
title_short	The hyperbolic geometry of financial networks
title_full	The hyperbolic geometry of financial networks
title_fullStr	The hyperbolic geometry of financial networks
title_full_unstemmed	The hyperbolic geometry of financial networks
title_sort	hyperbolic geometry of financial networks
publisher	Nature Portfolio
publishDate	2021
url	https://doaj.org/article/5d296847ad2447c69558f4e3dcd97927
work_keys_str_mv	AT martinkellerressel thehyperbolicgeometryoffinancialnetworks AT stephanienargang thehyperbolicgeometryoffinancialnetworks AT martinkellerressel hyperbolicgeometryoffinancialnetworks AT stephanienargang hyperbolicgeometryoffinancialnetworks
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The hyperbolic geometry of financial networks

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