​Introduction to Systemic Risk and Financial Stability

Master-level course; Fall 2018 semester.
PhD-level course; Spring 2019 semester.

Understanding the dynamics of contagion in financial networks is crucial to design a financial system that is more stable, that does not increase inequality in our society, and that is more aligned with the financing needs of combating climate change in a low-carbon economy.

Ten years after the 2008 global financial crisis it is now widely accepted that the financial system is best described as a complex network. Yet, differently for other domains of complex networks, economic agents make decisions based on their own expectations on the future, including being rescued if they become interconnected enough to be considered systemically important. For these reasons, the endogenous dynamics of systemic risk in the financial system is far from being fully understood from a scientific perspective, and it is currently not adequately addressed by policy.

Throughout this course, students will learn to master the theoretical notions needed to understand and use network models of financial contagion. During the practical exercises with provided software tools, the students will also acquire an operational know-how to analyze empirical financial networks from the perspective of systemic risk and how to carry out simple stress-tests on real financial networks.


Additional information: The final grade will be the weighted average of the following

  • 10% class active participation,
  • 40% individually submitted homeworks,
  • 35% final report,
  • 15% presentation of the project.


  1. S. Battiston, G. Caldarelli, and M. D'Errico, “The financial system as a nexus of interconnected networks", in Interconnected Networks, pp. 195-229, Springer, 2016.
  2. S. Battiston, I. Mandel, Antoine Monasterolo, F. Schuetze, and G. Visentin, “A Climate stress-test of the EU financial system", Available at SSRN id=2726076, 2016.
  3. S. Battiston, G. Caldarelli, M. D'errico, and S. Gurciullo, “Leveraging the network : a stress-test framework based on DebtRank", Statistics and Risk Modeling, forthcoming, ssrn 2571218, pp. 1-33, 2016.
  4. S. Battiston, G. Caldarelli, R. May, T. Roukny, and J. E. Stiglitz, “The Price of Complexity in Financial Networks", SSRN 2594028, 2015.
  5. S. Battiston, M. D'Errico, and G. Visentin, “Leverage Networks: Rethinking Financial Contagion Across Models", 2016.
  6. S. Battiston, M. D’Errico, and G. Visentin, “Rethinking financial contagion," Preprint at http://ssrn.com/abstract, vol. 2831143, 2016.
  7. L. Eisenberg and T. H. Noe, “Systemic Risk in Financial Systems", Management Science, vol. 47, no. 2, pp. 236-249, 2001.
  8. H. Elsinger, A. Lehar, and M. Summer, “Risk Assessment for Banking Systems", Management Science, vol. 52, no. 9, pp. 1301-1314, 2006.
  9. P. Glasserman and H. P. Young, “How likely is contagion in financial networks?", Journal of Banking & Finance, vol. 50, pp. 383-399, 2015.
  10. L. C. G. Rogers and L. A. M. Veraart, “Failure and rescue in an interbank network", Management Science, vol. 59, no. 4, pp. 882-898, 2013.