The qualification of systemic risks lies in the systemic nature and risks to one system may present an opportunity to another system. The impacts of systemic risks challenge the integrity of a connected world. However the consequences of systemic risks are harder to predict and estimate and understanding the nature of systemic risks presents challenges to all of us. There are also some fundamental aspects of systemic risks: interdependency, extreme rare events. This feature provides an insight into how interdependency affects the way to manage globally connected network systems. For instance, the recent banking crises have made it clear that increasingly complex strategies for managing risk in individual banks have not been matched by corresponding attention to overall systemic risks.
In this tutorial we discuss a large number of interesting theoretical and empirical questions of systemic risks. We introduce some models on financial systemic risks. The first one is a cascade model proposed by Gai et al., the second one is a balanced-sheet based model by Nier et al., and the third one is banking ecosystems by May et al. These models consider the interplay between the characteristics of individual banks and the overall dynamics of the system. These models basically focus on designing of regulation policies aimed at reducing systemic risk.
The network is only as strong as its weakest link, and trade-offs are most often connected to a function that models system performance management. There is a class of problems, ranging from risk contagion to the control of systemic risk, that are naturally defined as network optimization problems. In this tutorial we also focus on the role of agent-based simulation to foster the management issues of coordinated actions that may deter some actors from incurring the costs of the risk-reducing measures.