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The Network Challenge: Strategy, Profit, and Risk in an Interlinked World by Robert E. Gunther, Yoram Wind, Paul R. Kleindorfer

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21. Networks in Finance1

Franklin AllenAna Babus

1 We are grateful to the editors and to participants at the Wharton INSEAD conference on November 8-9, 2007, where the book’s papers were presented for their helpful comments.

Abstract

Modern financial systems exhibit a high degree of interdependence, with connections between financial institutions stemming from both the asset and the liability sides of their balance sheets. Networks—broadly understood as a collection of nodes and links between nodes—can be a useful representation of financial systems. By modeling economic interactions, network analyses can better explain certain economic phenomena. In this chapter, Allen and Babus argue that the use of network theories can enrich our understanding ...

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