Ricci Curvature to Predict Financial Market Risk

Prof. Tryphon Georgiou, and co-authors Romeil Sandhu and Prof. Allen Tannenbaum (at the Department of Computer Science, and the Department of Applied Mathematics and Statistics, respectively at SUNY, Stony Brook) demonstrate that curvature can be used as an indicator of the fragility of financial markets. In their paper titled “Ricci Curvature: An Economic Indicator for Market Fragility and Systemic Risk” published in Science Advances, the authors, using data comprising stocks that form the S&P 500 over a 15-year period, show that curvature is a hallmark of crash and therefore an economic risk indicator. An increase in fragility, a characteristic of market behavior, is usually followed by a financial crash. Attaching a quantitative indicator such as the Ricci curvature to systemic risk can help in the design of interconnected markets, banking systems, and regulate financial and banking policies to avoid a scenario such as the global financial crisis of 2007 – 2008.