The 2008 worldwide financial crisis made it evident that the international banking network is subject to contagion – the failure of one or more banks can cause a cascade of effects, due in fact that banks often owe money to other banks or hold similar risky assets. But when Andreea Minca, assistant professor at Cornell's Operations Research and Information Engineering department, began her research on this phenomenon, she discovered that “adequate methodologies for systemic risk assessment were lacking.” In 2013 Federal Research Chair Janet Yellen told the American Finance Association and the American Economic Association that “with a few narrow exceptions [the models] treat all market participants as similar in size and in range of activities, and they use relatively simplistic network structures.”
Andreea Minca, the Andrew Schultz ’36 PhD ’41 Sesquicentennial Fellow in ORIE, receives the SIAG/FME Early Career Award. At left, Mike Ludkovski, chair of SIAG/FME.
For her work on the modeling of contagion in large-scale financial networks with heterogeneous structures, the SIAM Activity Group on Financial Mathematics and Engineering (SIAG/FME) has awarded Minca the 2016 Early Career Prize
. This prize is awarded to "an outstanding early career researcher for distinguished contributions to the mathematical modeling of financial markets in the three years prior to the year of the award."
The award citation reads: “Dr. Andreea Minca has made fundamental contributions to our understanding of financial instability, quantifying and managing systemic risk, and the control of interbank contagion.” The award was presented at the annual SIAM Conference on Financial Mathematics and Engineering, held last month in Austin, Texas.
As the citation suggests, Minca’s work goes beyond assessing contagion risk to examining detailed ways to mitigate it, for example by the injection of liquidity by governments, the adjustment of capital and connectivity by banks, and the well-designed establishment of central clearing mechanisms for over-the-counter derivatives (as called for by the 2010 Dodd-Frank legislation). Working with her frequent co-author, Assistant Professor Hamed Amini of the University of Miami, she is on “a long journey, with the goal to build a theory of contagion in financial networks that is both mathematically rigorous and amenable to data.”
Andreea Minca's hazard network. Image credit: Andreea Minca.
Minca has also gone beyond consideration of financial infrastructure in isolation by collaborating with civil and environmental engineering professor Matteo Pozzi and electrical engineering professor Bruno Sinopoli, both at Carnegie Mellon University, to study the joint resilience of financial and physical infrastructure under extreme events such as hurricanes, earthquakes, wildfires, or manmade events. The interdependence is portrayed at left.
The National Science Foundation recently awarded Minca and her collaborators grants for their “Critical Resilient Interdependent Infrastructure Systems and Processes (CRISP)” program to explore such networks.
While Minca’s work is grounded in the financial and physical reality of network risk, she employs and advances underlying mathematics in several domains, including machine learning (with her Cornell colleague Yudong Chen), the theory of random graphs, stochastic analysis, game theory, control theory and two-stage optimization under uncertainty. She is also concerned with calibrating her models with real data, through the use of simulation and other algorithms.
Minca completed her undergraduate and masters level studies in Probability, Finance, Applied Mathematics and Computer Science at Ecole Polytechnique in Paris, and holds a Ph.D. in Applied Mathematics from Paris VI Pierre et Marie Curie University.
This article is republished from Cornell Engineering News.