Analogies, Metaphors and Big Problems

Innovation is often the act of transferring solutions that work well in one sector to another. A problem here might have a great solution elsewhere.

We, at UnRisk, had a great start, because we transferred the most advanced numerical schemes, solving PDEs, PIDEs, ..  in complex technical systems, like chemical reactors, combustion engines, ... to finance. This technology transfer enabled us to introduce blazingly fast but still accurate pricing and calibration engine and our customers to do risk management with comprehensive portfolio across scenario analysis based on full valuations.

On another scale: recently I read debtrank in The Physics of Finance Blog that I frequently follow. It describes another transfer that is surprising in the first moment but not so much thinking of complexity economics and its metaphor of evolution, especially the analogies between the food web  (what eats what) and an economic web (who profits from whom).
DebtRank was inspired by the PageRank algorithm invented by the Google founders, Brin and Page.

This is the original DebtRank paper, published in Nature Scientific Reports.

Mark Buchanan writes in his Blog: The essential insight of the PageRank algorithm is that any network of things that make reference to each other, each element effectively votes for other importance of other elements by linking to them.

The analogy from PageRank to DebtRank is quite direct. It becomes quite clear that simple bank size is not as important as we might have thought. Those banks represent the greatest risk (if they failed) that would cause the widest spread of economic distress.