Economic Networks

Open Risk White Paper 16: Follow the Money: Random Walks on Supply and Use Graphs

We explore how to organize Environmentally-Extended Input-Output frameworks (EEIO), and in particular their Supply and Use Table (SUT) formulation, as graphs. Working directly with SUT systems instead of converting to symmetric IO matrices involves fewer assumptions and (in principle) higher resolution in expressing environmental impacts. We elaborate first on the representation of SUT tables as directed, weighted bipartite graphs. We discuss both closed (circular) and open system configurations, featuring source and sink nodes. These are modeled as regular and absorbing Markov Chains respectively. We outline a probabilistic random walk framework that realizes mathematically the colloquial Follow the Money concept. This enables computing a range of various existing and new metrics using the EEIO data. As an illustration, besides the standard environmental footprint metric, we introduce the concept of footprint variance or the intrinsic variability of estimates. We illustrate the overall setup using a classic numerical example from the EEIO literature.

Expanding on the popular Input-Output Models with Python course

The SFI32064 course is a DeepDive with nine segments, exploring Input-Output models using Python and the Pymrio library. The following is an updated overview of it contents.

EEIO in Sustainable Finance: Challenges and Opportunities

Presentation given at the 15th I-O Workshop, March 1st 2024, Osnabrueck, Germany

We discuss the overlap of EEIO tools with Sustainable Finance applications. In particular their potential role in Portfolio Management and, more specifically,

• the Attribution of environmental impact in financial portfolios and,
• the Allocation of future financial resources and sustainability constraints

We sketch two proof-of-concept computer applications that highlight opportunities and challenges:

Who Needs a New Financial Services Taxonomy?

Our age is increasingly dominated by the dual challenges and opportunities of the sustainability transition on the one hand, and digital transformation on the other. We witness emerging new financial domains with novel names such as Fintech , or TechFin, or various combinations and hues of Green and Sustainable in Sustainable Finance and we see forces that are reshaping the direction of travel for the financial industry.

Open Risk White Paper 15: Tensor Representations of ActivityPub Networks

In this third Open Risk White Paper on Connecting the Dots we explore representations of online communication networks that are organized according to the ActivityPub protocol. We discuss the main relevant features of the protocol and the broader application ecosystem around it that shapes emerging online network topologies. We develop a stylized description of ActivityPub compliant networks as a mathematical multilayer network. Tensor representations of such complex graphs generalize the more familiar matrix algebra tools and can be useful in various ways: On the one hand they help empirical work in analyzing the characteristics of such networks, on the other they enable simulating and exploring network behavior.

What are ActivityPub Networks?

ActivityPub is a technical specification towards decentralized (more precisely, federated) social networking (termed the Fediverse) based upon the exchange of ActivityStreams messages that follow the Activity Vocabulary. The ActivityPub proposal has been standardized and published by the W3C and has motivated the design of several federated social networking systems.

June 21 2023 marks the sixth annual #ShowYourStripes Day - a time when meteorologists and other climate communicators around the world raise awareness of our warming planet by displaying colorful visuals of climate change. The warming stripe graphics are representations of the change in temperature over the past 100+ years (here we use the global average). Each stripe represents the temperature averaged over a year. The stripes typically start around the year 1900 and finish in 2022.

Open Risk White Paper 14: Integrated energy accounting using relational databases

In this Open Risk White Paper we demonstrate a concrete implementation of an integrated energy accounting framework using relational database technologies. The framework enables accounting of non-financial disclosures (such as the physical and embodied energy footprints of economic transactions) while enforcing the familiar double-entry balance constraints used to produce conventional (monetary) accounts and financial statements. In addition, it allows enforcing constraints associated with the flow and transformations of energy that can happen inside the organizational perimeter.

Open Risk White Paper 13: Federated Credit Systems, Part II: Techniques for Federated Data Analysis

In this Open Risk White Paper, the second of series focusing on Federated Credit Systems, we explore techniques for federated credit data analysis. Building on the first paper where we outlined the overall architecture, essential actors and information flows underlying various business models of credit provision, in this step we focus on the enabling arrangements and techniques for building Federated Credit Data Systems and enabling Federated Analysis.

Course Objective

Digging into the meaning of credit data collections, the logic that binds them together towards understanding what they can be used for and what limitations and issues they may be affected by, this new course in the Credit Portfolio Management category explores a new angle to look at an old practice.

Modeling economic networks and their dynamics

Economic networks are the primary abstractions though which we can conceptualize the state (condition) and evolution of economic interactions. This simply reflects the fact that human economies are quite fundamentally systems of interacting actors (or nodes in a network) with transient or more permanent relations between them.

Integrated Energy Accounting is keeping track and reporting on an entity’s detailed energy footprint (primary inputs, transformations and waste generation) not as an addendum to financial accounting and reporting but as a deeply-linked extension that is subject to the same level of rigor.

Open Risk White Paper 12: Deep-Linking Financial and Energy Accounting

We develop a conceptual framework for integrated accounting that produces (where possible) non-financial disclosures subject to the same double-entry balance constraints as those used to produce conventional financial statements and automatically ensures any additional conservation laws are satisfied. We identify the key ingredients required for such a rigorous integrated accounting framework, in terms of concepts, postulates and design choices. Our focus and concrete use case is built around energy accounting, keeping track on an entity’s detailed energy footprint (primary inputs, transformations and waste generation) as an extension of its standard financial accounting and reporting. The central tool is the use of multidimensional double-entry bookkeeping which tracks quantitative information characterizing economic objects beyond their monetary values. This choice ensures the enforcement of both classic balance constraints and any applicable energy conservation laws. Further tools and techniques concern the aggregation and reporting of dual (monetary and physical) dimensions of an entity’s accounting state. The framework is documented using mathematical notation.

Course Objective

The objective of the course is to discuss the relation of economic input-output models with graph theory and networks.

What are Input-Output Models?

Environmentally Extended Multi-Regional Input-Output (EE-MRIO) tables describe economic relationships of economic actors (e.g. industrial sectors) operating within and between regions and their environmental repercussions.

An EE MRIO augments the more basic and historically first proposed Input-Output Models (IO) with additional datasets and/or modeling assumptions in order to provide insights into the environmental foorprint of economic activity. Presently, the emphasis on negative externalities of economic activity (e.g., climate change, biodiversity loss) turns EE MRIO models into a useful conceptual and analytic tool. Yet a good grounding on the underlying IO models is a prerequisite and this is the focus of this new course that is now available at the Open Risk Academy.

Open Risk White Paper 10: Connecting the Dots: Concentration, diversity, inequality and sparsity in economic networks

In this second Open Risk White Paper on Connecting the Dots we examine measures of concentration, diversity, inequality and sparsity in the context of economic systems represented as network (graph) structures. We adopt a stylized description of economies as property graphs and illustrate how relevant concepts can be represented in this language. We explore in some detail data types representing economic network data and their statistical nature which is critical in their use in concentration analysis. We proceed to recast various known indexes drawn from distinct disciplines in a unified computational context.

Concentration, diversity, inequality and sparsity in the context of economic networks

In this second Open Risk White Paper on Connecting the Dots we examine measures of concentration, diversity, inequality and sparsity in the context of economic systems represented as network (graph) structures. We adopt a stylized description of economies as property graphs and illustrate how relevant concepts can represent in this language. We explore in some detail data types representing economic network data and their statistical nature which is critical in their use in concentration analysis. We proceed to recast various known indexes drawn from distinct disciplines in a unified computational context.

Course Objective

Graphs (and the related concept of Networks) have emerged from a relative mathematical and physics niches to become mainstream models for describing and interpreting various phenomena. The objective of the course is to review various important graph types as they are increasingly explored in data science and sketch their linkages and relationships (a graph of graphs!).

The role of simulation in risk management and decision support

A Simulation is a simplified imitation of a process or system that represents with some fidelity its operation over time. In the context of risk management and decision support simulation can be a very powerful tool as it allows us to assess potential outcomes in a systematic way and explore what-if questions in ways that might otherwise be not feasible. Simulation is used when the underlying model is too complex to yield explicit analytic models (An analytic model is one can be “solved” exactly or with standard numerical methods, for example resulting in a formula).

Federated Credit Systems, Part I: Unbundling the Credit Provision Business Model

As an architectural design and information technology approach, federation has received increased attention in domains such as the medical sector (under the name federated analysis), in official statistics (under the name trusted data) and in mass computing devices (smartphones), under the name federated learning.