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Oil, Ukraine, Greece, China and Volkswagen. Measuring the Reaction of Global Finance.



Over the past twelve months we’ve had the Ruble crisis, the plummeting oil prices, the Ukraine crisis, the Greek referendum and elections, the Chinese markets plunge and, recently, the Volkswagen scandal. Which hit the hardest? How do you measure the intensity of a crisis? How do you measure the response of the economy in such circumstances? Clearly, a crisis is a debilitating event. Otherwise, it wouldn’t be a crisis. After a crisis a system recovers. If it doesn’t it wasn’t a crisis, it was a catastrophic collapse. So, how intense was each of these events in terms of impact on global finance and how did global finance react?

The magnitude of a crisis may be quantified in terms of how much fragility it induces in a given system. This may be measured easily a loss of resilience (the opposite to fragility). Resilience measure the capacity of a system to absorb shocks, a most convenient property nowadays. The plot below illustrates the evolution of the resilience of the global financial system based on all of the World’s stock markets and their interactions.


r_crisesThe plot shows clearly how, in each case, resilience fell by up to 15%. After the ruble crisis and plunge of oil prices the system recovered its resilience in a matter of 3 months. Then came the Ukraine crisis, with another drop of 15%. again, recovery of resilience was quite steady. Then Greece came back on the radar, causing a slow and progressive increase in fragility, to fall suddenly when the bailout referendum was announced. In June the system had an alarmingly low value of resilience – 46%. A jumpy recovery followed once more until the Chinese markets fell. However, in this case there was little damage done. A certainly more intense reaction came after the Volkswagen fraud has been discovered, a nearly 10% drop in resilience. As the VW crisis unfolds it will be interesting to observe how far the reaction will extend.

An example of what the global financial system’s Complexity Map looks like is illustrated below:


The above map may be navigated interactively here.

Established originally in 2005 in the USA, Ontonix is a technology company headquartered in Como, Italy. The unusual technology and solutions developed by Ontonix focus on countering what most threatens safety, advanced products, critical infrastructures, or IT network security - the rapid growth of complexity. In 2007 the company received recognition by being selected as Gartner's Cool Vendor. What makes Ontonix different from all those companies and research centers who claim to manage complexity is that we have a complexity metric. This means that we MEASURE complexity. We detect anomalies in complex defense systems without using Machine Learning for one very good reason: our clients don’t have the luxury of multiple examples of failures necessary to teach software to recognize them. We identify anomalies without having seen them before. Sometimes, you must get it right the first and only time!

1 comment on “Oil, Ukraine, Greece, China and Volkswagen. Measuring the Reaction of Global Finance.

  1. Pingback: Sustainability and the Dramatic Importance of Systemic Analysis | Ontonix QCM Blog

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