Financial Networks and Portfolio Management

Abstract

This article aims to provide information on how networks gauge and visualize complex interactions and relationships between assets, factors, or other economic variables. The authors show that networks are helpful in portfolio and risk management and explain the important properties and metrics that describe networks and show examples of network applications. They discuss how the different types of networks—information, technological, social, and biological—have common properties that find their justification in finance and can be used in portfolio and risk management. Understanding the building elements of graphs and appropriate metrics provides valuable tools for researchers to deal with interacting risk entities. The article highlights and provides examples of how networks can be among the most complex graphs, and their use in portfolio management is bright and promising.