Computing a Complex Network Hierarchical Structure for Financial Market Networks on the Basis of the Hybrid Heuristic Algorithm

Abstract EN

The recent empirical studies showed that money center networks in interbank markets are more robust and stable.

Therefore, the research on layered financial networks is a key part of the systemic risk management.

Various methods have been proposed in prior studies to find optimal partitioning of interbank networks into core and periphery subsets.

However, these methods that have been adopted with approximation methods, in general, do not guarantee optimal bipartition.

In this paper, a genetic simulated annealing algorithm is presented to detect a hierarchical structure in interbank networks as a hybrid heuristic algorithm, while its effects are also analyzed.

The optimization of the error score for the core-periphery model is mathematically developed firstly as an improved expression of the optimization function, which incorporates the genetic algorithm into a simulated annealing algorithm to guarantee the optimal bipartition and to jump from a local optimization.

The results of this algorithm are finally verified by empirical analysis of interbank networks; and, through the immunity strategy under the risk diffusion model, the significance of core-periphery structure to risk management is verified.