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The level of systemic risk in economic and financial systems is strongly determined by the structure of the underlying networks of interdependent entities that can propagate shocks and stresses. Since changes in network structure imply changes in risk levels, it is important to identify structural transitions potentially leading to system-wide crises. Methods have been proposed to assess whether a real-world network is in a (quasi-)stationary state by checking the consistency of its structural evolution with appropriate maximum-entropy ensembles of graphs. While previous analyses of this kind have focused on dyadic and triadic motifs, hence disregarding higher-order structures, here we consider closed walks of any length. Specifically, we study the ensemble properties of the spectral radius of random graph models calibrated on real-world evolving networks. Our approach is shown to work remarkably well for directed networks, both binary and weighted. As illustrative examples, we consider the Electronic Market for Interbank Deposit (e-MID), the Dutch Interbank Network (DIN) and the International Trade Network (ITN) in their evolution across the 2008 crisis. By monitoring the deviation of the spectral radius from its ensemble expectation, we find that the ITN remains in a (quasi-)equilibrium state throughout the period considered, while both the DIN and e-MID exhibit a clear out-of-equilibrium behaviour. The spectral deviation therefore captures ongoing topological changes, extending over all length scales, to provide a compact proxy of the resilience of economic and financial networks.

Production networks constitute the backbone of every economic system. They are inherently fragile as several recent crises clearly highlighted. Estimating the system-wide consequences of local disruptions (systemic risk) requires detailed information on the supply chain networks (SCN) at the firm-level, as systemic risk is associated with specific mesoscopic patterns. However, such information is usually not available and realistic estimates must be inferred from available sector-level data such as input-output tables and firm-level aggregate output data. Here we explore the ability of several maximum-entropy algorithms to infer realizations of SCNs characterized by a realistic level of systemic risk. We are in the unique position to test them against the actual Ecuadorian production network at the firm-level. Concretely, we compare various properties, including the Economic Systemic Risk Index, of the Ecuadorian production network with those from four inference models. We find that the most realistic systemic risk content at the firm-level is retrieved by the model that incorporates information about firm-specific input disaggregated by sector, indicating the importance of correctly accounting for firms' heterogeneous input profiles across sectors. Our results clearly demonstrate the minimal amount of empirical information at the sector level that is necessary to statistically generate synthetic SCNs that encode realistic firm-specific systemic risk.

Most of the analyses concerning signed networks have focused on the balance theory, hence identifying frustration with undirected, triadic motifs having an odd number of negative edges; much less attention has been paid to their directed counterparts. To fill this gap, we focus on signed, directed connections, with the aim of exploring the notion of frustration in such a context. When dealing with signed, directed edges, frustration is a multi-faceted concept, admitting different definitions at different scales: if we limit ourselves to consider cycles of length two, frustration is related to reciprocity, i.e. the tendency of edges to admit the presence of partners pointing in the opposite direction. As the reciprocity of signed networks is still poorly understood, we adopt a principled approach for its study, defining quantities and introducing models to consistently capture empirical patterns of the kind. In order to quantify the tendency of empirical networks to form either mutualistic or antagonistic cycles of length two, we extend the Exponential Random Graphs framework to binary, directed, signed networks with global and local constraints and, then, compare the empirical abundance of the aforementioned patterns with the one expected under each model. We find that the (directed extension of the) balance theory is not capable of providing a consistent explanation of the patterns characterising the directed, signed networks considered in this work. Although part of the ambiguities can be solved by adopting a coarser definition of balance, our results call for a different theory, accounting for the directionality of edges in a coherent manner. In any case, the evidence that the empirical, signed networks can be highly reciprocated leads us to recommend to explicitly account for the role played by bidirectional dyads in determining frustration at higher levels (e.g. the triadic one)., Comment: 35 pages, 9 figures, 4 tables

According to traditional balance theory, individual social actors avoid establishing triads with an odd number of negative links. Generalising, mesoscopic balance is realised when the nodes of a signed graph can be grouped into positively connected subsets, mutually connected by negative links. If this prescription is interpreted rigidly without allowing for statistical noise, it quickly dismisses most real graphs as frustrated. As an alternative, a relaxed, yet qualitative, definition of balance has been advanced. After rephrasing both variants in statistically testable terms, we propose an inference scheme to unambiguously assess if a signed graph is traditionally or relaxedly balanced., Comment: 20 pages, 13 figures, 1 table

Recent research has tried to extend the concept of renormalization, which is naturally defined for geometric objects, to more general networks with arbitrary topology. The current attempts do not naturally apply to directed networks, for instance because they are based on the identification of (necessarily symmetric) inter-node distances arising from geometric embeddings or on the definition of Hermitian Laplacian operators requiring symmetric adjacency matrices in spectral approaches. Here we show that the Scale-Invariant Model, recently proposed as an approach to consistently model undirected networks at arbitrary (and possibly multi-scale) resolution levels, can be extended coherently to directed networks without the requirement of an embedding geometry or Laplacian structure. Moreover, it can account for nontrivial reciprocity, i.e. the empirically well-documented tendency of links to occur in mutual pairs more or less often than predicted by chance. After deriving the renormalization rules for networks with arbitrary reciprocity, we consider various examples. In particular we propose the first multiscale model of the international trade network with nontrivial reciprocity and an annealed model where positive reciprocity emerges spontaneously from coarse-graining. In the latter case, the renormalization process defines a group, not only a semigroup, and therefore allows to fine-grain networks to arbitrarily small scales. These results strengthen the notion that network renormalization can be defined in a much more general way than required by geometric or spectral approaches, because it needs only node-specific (metric-free) features and can coexist with the asymmetry of directed networks.

Networks of financial exposures are the key propagators of risk and distress among banks, but their empirical structure is not publicly available because of confidentiality. This limitation has triggered the development of methods of network reconstruction from partial, aggregate information. Unfortunately, even the best methods available fail in replicating the number of directed cycles, which on the other hand play a crucial role in determining graph spectra and hence the degree of network stability and systemic risk. Here we address this challenge by exploiting the hypothesis that the statistics of higher-order cycles is strongly constrained by that of the shortest ones, i.e. by the amount of dyads with reciprocated links. First, we provide a detailed analysis of link reciprocity on the e-MID dataset of Italian banks, finding that correlations between reciprocal links systematically increase with the temporal resolution, typically changing from negative to positive around a timescale of up to 50 days. Then, we propose a new network reconstruction method capable of enforcing, only from the knowledge of aggregate interbank assets and liabilities, both a desired sparsity and a desired link reciprocity. We confirm that the addition of reciprocity dramatically improves the prediction of several structural and spectral network properties, including the largest real eigenvalue and the eccentricity of the elliptical distribution of the other eigenvalues in the complex plane. These results illustrate the importance of correctly addressing the temporal resolution and the resulting level of reciprocity in the reconstruction of financial networks., Comment: Accepted to Chaos, Solitons & Fractals Journal

Temporal Networks, and more specifically, Markovian Temporal Networks, present a unique challenge regarding the community discovery task. The inherent dynamism of these systems requires an intricate understanding of memory effects and structural heterogeneity, which are often key drivers of network evolution. In this study, we address these aspects by introducing an innovative approach to community detection, centered around a novel modularity function. We focus on demonstrating the improvements our new approach brings to a fundamental aspect of community detection: the detectability threshold problem. We show that by associating memory directly with nodes' memberships and considering it in the expression of the modularity, the detectability threshold can be lowered with respect to cases where memory is not considered, thereby enhancing the quality of the communities discovered. To validate our approach, we carry out extensive numerical simulations, assessing the effectiveness of our method in a controlled setting. Furthermore, we apply our method to real-world data to underscore its practicality and robustness. This application not only demonstrates the method's effectiveness but also reveals its capacity to indirectly tackle additional challenges, such as determining the optimal time window for aggregating data in dynamic graphs. This illustrates the method's versatility in addressing complex aspects of temporal network analysis.

One of the main goals of developmental biology is to reveal the gene regulatory networks (GRNs) underlying the robust differentiation of multipotent progenitors into precisely specified cell types. Most existing methods to infer GRNs from experimental data have limited predictive power as the inferred GRNs merely reflect gene expression similarity or correlation. Here, we demonstrate, how physics-informed neural networks (PINNs) can be used to infer the parameters of predictive, dynamical GRNs that provide mechanistic understanding of biological processes. Specifically we study GRNs that exhibit bifurcation behavior and can therefore model cell differentiation. We show that PINNs outperform regular feed-forward neural networks on the parameter inference task and analyze two relevant experimental scenarios: 1. a system with cell communication for which gene expression trajectories are available and 2. snapshot measurements of a cell population in which cell communication is absent. Our analysis will inform the design of future experiments to be analyzed with PINNs and provides a starting point to explore this powerful class of neural network models further., Comment: 25 pages, 8 figures

We analyse the largest eigenvalue of the adjacency matrix of the configuration model with large degrees, where the latter are treated as hard constraints. In particular, we compute the expectation of the largest eigenvalue for degrees that diverge as the number of vertices $n$ tends to infinity, uniformly on a scale between $1$ and $\sqrt{n}$, and show that a weak law of large numbers holds. We compare with what was derived in our earlier paper "Central limit theorem for the principal eigenvalue and eigenvector of Chung-Lu random graphs" for the Chung-Lu model, which in the regime considered represents the corresponding configuration model with soft constraints, and show that the expectation is shifted down by $1$ asymptotically. This shift is a signature of breaking of ensemble equivalence between the hard and soft (also known as micro-canonical and canonical) versions of the configuration model. The latter result generalizes a previous finding in "A spectral signature of breaking of ensemble equivalence for constrained random graphs" obtained in the case when all degrees are equal., Comment: 21 pages, 3 figures

Many empirical networks originate from correlational data, arising in domains as diverse as psychology, neuroscience, genomics, microbiology, finance, and climate science. Specialized algorithms and theory have been developed in different application domains for working with such networks, as well as in statistics, network science, and computer science, often with limited communication between practitioners in different fields. This leaves significant room for cross-pollination across disciplines. A central challenge is that it is not always clear how to best transform correlation matrix data into networks for the application at hand, and probably the most widespread method, i.e., thresholding on the correlation value to create either unweighted or weighted networks, suffers from multiple problems. In this article, we review various methods of constructing and analyzing correlation networks, ranging from thresholding and its improvements to weighted networks, regularization, dynamic correlation networks, threshold-free approaches, and more. Finally, we propose and discuss a variety of key open questions currently confronting this field., Comment: 1 figure

Shannon entropy is the shortest average codeword length a lossless compressor can achieve by encoding i.i.d. symbols. However, there are cases in which the objective is to minimize the \textit{exponential} average codeword length, i.e. when the cost of encoding/decoding scales exponentially with the length of codewords. The optimum is reached by all strategies that map each symbol $x_i$ generated with probability $p_i$ into a codeword of length $\ell^{(q)}_D(i)=-\log_D\frac{p_i^q}{\sum_{j=1}^Np_j^q}$. This leads to the minimum exponential average codeword length, which equals the R\'enyi, rather than Shannon, entropy of the source distribution. We generalize the established Arithmetic Coding (AC) compressor to this framework. We analytically show that our generalized algorithm provides an exponential average length which is arbitrarily close to the R\'enyi entropy, if the symbols to encode are i.i.d.. We then apply our algorithm to both simulated (i.i.d. generated) and real (a piece of Wikipedia text) datasets. While, as expected, we find that the application to i.i.d. data confirms our analytical results, we also find that, when applied to the real dataset (composed by highly correlated symbols), our algorithm is still able to significantly reduce the exponential average codeword length with respect to the classical `Shannonian' one. Moreover, we provide another justification of the use of the exponential average: namely, we show that by minimizing the exponential average length it is possible to minimize the probability that codewords exceed a certain threshold length. This relation relies on the connection between the exponential average and the cumulant generating function of the source distribution, which is in turn related to the probability of large deviations. We test and confirm our results again on both simulated and real datasets., Comment: 22 pages, 9 figures

In the age of information abundance, attention is a coveted resource. Social media platforms vigorously compete for users' engagement, influencing the evolution of their opinions on a variety of topics. With recommendation algorithms often accused of creating "filter bubbles", where like-minded individuals interact predominantly with one another, it's crucial to understand the consequences of this unregulated attention market. To address this, we present a model of opinion dynamics on a multiplex network. Each layer of the network represents a distinct social media platform, each with its unique characteristics. Users, as nodes in this network, share their opinions across platforms and decide how much time to allocate in each platform depending on its perceived quality. Our model reveals two key findings. i) When examining two platforms - one with a neutral recommendation algorithm and another with a homophily-based algorithm - we uncover that even if users spend the majority of their time on the neutral platform, opinion polarization can persist. ii) By allowing users to dynamically allocate their social energy across platforms in accordance to their homophilic preferences, a further segregation of individuals emerges. While network fragmentation is usually associated with "echo chambers", the emergent multi-platform segregation leads to an increase in users' satisfaction without the undesired increase in polarization. These results underscore the significance of acknowledging how individuals gather information from a multitude of sources. Furthermore, they emphasize that policy interventions on a single social media platform may yield limited impact., Comment: 13 pages, 7 figures

Two dimensional matrices with binary (0/1) entries are a common data structure in many research fields. Examples include ecology, economics, mathematics, physics, psychometrics and others. Because the columns and rows of these matrices represent distinct entities, they can equivalently be expressed as a pair of bipartite networks that are linked by projection. A variety of diversity statistics and network metrics can then be used to quantify patterns in these matrices and networks. But what should these patterns be compared to? In all of these disciplines, researchers have recognized the necessity of comparing an empirical matrix to a benchmark set of "null" matrices created by randomizing certain elements of the original data. This common need has nevertheless promoted the independent development of methodologies by researchers who come from different backgrounds and use different terminology. Here, we provide a multidisciplinary review of randomization techniques for matrices representing binary, bipartite networks. We aim to translate the concepts from different technical domains into a common language that is accessible to a broad scientific audience. Specifically, after briefly reviewing examples of binary matrix structures across different fields, we introduce the major approaches and common strategies for randomizing these matrices. We then explore the details of and performance of specific techniques, and discuss their limitations and computational challenges. In particular, we focus on the conceptual importance and implementation of structural constraints on the randomization, such as preserving row or columns sums of the original matrix in each of the randomized matrices. Our review serves both as a guide for empiricists in different disciplines, as well as a reference point for researchers working on theoretical and methodological developments in matrix randomization methods.

Network reconstruction is a well-developed sub-field of network science, but it has only recently been applied to production networks, where nodes are firms and edges represent customer-supplier relationships. We review the literature that has flourished to infer the topology of these networks by partial, aggregate, or indirect observation of the data. We discuss why this is an important endeavour, what needs to be reconstructed, what makes it different from other network reconstruction problems, and how different researchers have approached the problem. We conclude with a research agenda.

Non-equivalence between the canonical and the microcanonical ensemble has been shown to arise for models defined by an extensive (i.e. scaling with the size of the system) number of constraints (e.g. the Configuration Model). Here, we compare the description length of binary canonical and microcanonical models in light of ensemble non-equivalence. Specifically, we consider the description length induced by the Normalized Maximum Likelihood (NML), which consists of two terms, i.e. a model log-likelihood and its complexity. While the effects of ensemble non-equivalence on the log-likelihood term are well understood, its effects on the complexity term have not yet been systematically studied. Here, we find that i) microcanonical models are always more complex than their canonical counterparts, ii) the best-scoring model in terms of description length highly depends on the numerical values of the constraints, and iii) the difference between the canonical and the microcanonical description length is strongly influenced by the degree of non-equivalence, a result suggesting that non-equivalence should be taken into account when selecting models. Finally, we compare the NML-based approach to model selection with the Bayesian one in light of our results, showing that the Bayesian description length becomes much more sensitive to the choice of the prior when an extensive number of constraints is involved

The structure of many financial networks is protected by privacy and has to be inferred from aggregate observables. Here we consider one of the most successful network reconstruction methods, producing random graphs with desired link density and where the observed constraints (related to the market size of each node) are replicated as averages over the graph ensemble, but not in individual realizations. We show that there is a minimum critical link density below which the method exhibits an `unreconstructability' phase where at least one of the constraints, while still reproduced on average, is far from its expected value in typical individual realizations. We establish the scaling of the critical density for various theoretical and empirical distributions of interbank assets and liabilities, showing that the threshold differs from the critical densities for the onset of the giant component and of the unique component in the graph. We also find that, while dense networks are always reconstructable, sparse networks are unreconstructable if their structure is homogeneous, while they can display a crossover to reconstructability if they have an appropriate core-periphery or heterogeneous structure. Since the reconstructability of interbank networks is related to market clearing, our results suggest that central bank interventions aimed at lowering the density of links should take network structure into account to avoid unintentional liquidity crises where the supply and demand of all financial institutions cannot be matched simultaneously.

Triadic motifs are the smallest building blocks of higher-order interactions in complex networks and can be detected as over-occurrences with respect to null models with only pair-wise interactions. Recently, the motif structure of production networks has attracted attention in light of its possible role in the propagation of economic shocks. However, its characterization at the level of individual commodities is still poorly understood. Here we analyze both binary and weighted triadic motifs in the Dutch inter-industry production network disaggregated at the level of 187 commodity groups, which Statistics Netherlands reconstructed from National Accounts registers, surveys and known empirical data. We introduce appropriate null models that filter out node heterogeneity and the strong effects of link reciprocity and find that, while the aggregate network that overlays all products is characterized by a multitude of triadic motifs, most single-product layers feature no significant motif, and roughly $85\%$ of the layers feature only two motifs or less. This result paves the way for identifying a simple `triadic fingerprint' of each commodity and for reconstructing most product-specific networks from partial information in a pairwise fashion by controlling for their reciprocity structure. We discuss how these results can help statistical bureaus identify fine-grained information in structural analyses of interest for policymakers., Comment: 20 pages, 6 figures

The abundance of data about social relationships allows the human behavior to be analyzed as any other natural phenomenon. Here we focus on balance theory, stating that social actors tend to avoid establishing cycles with an odd number of negative links. This statement, however, can be supported only after a comparison with a benchmark. Since the existing ones disregard actors' heterogeneity, we extend Exponential Random Graphs to signed networks with both global and local constraints and employ them to assess the significance of empirical unbalanced patterns. We find that the nature of balance crucially depends on the null model: while homogeneous benchmarks favor the weak balance theory, according to which only triangles with one negative link should be under-represented, heterogeneous benchmarks favor the strong balance theory, according to which also triangles with all negative links should be under-represented. Biological networks, instead, display strong frustration under any benchmark, confirming that structural balance inherently characterizes social networks., Comment: 46 pages, 14 figures, 7 tables

At least two, different approaches to define and solve statistical models for the analysis of economic systems exist: the typical, econometric one, interpreting the Gravity Model specification as the expected link weight of an arbitrary probability distribution, and the one rooted into statistical physics, constructing maximum-entropy distributions constrained to satisfy certain network properties. In a couple of recent, companion papers they have been successfully integrated within the framework induced by the constrained minimisation of the Kullback-Leibler divergence: specifically, two, broad classes of models have been devised, i.e. the integrated and the conditional ones, defined by different, probabilistic rules to place links, load them with weights and turn them into proper, econometric prescriptions. Still, the recipes adopted by the two approaches to estimate the parameters entering into the definition of each model differ. In econometrics, a likelihood that decouples the binary and weighted parts of a model, treating a network as deterministic, is typically maximised; to restore its random character, two alternatives exist: either solving the likelihood maximisation on each configuration of the ensemble and taking the average of the parameters afterwards or taking the average of the likelihood function and maximising the latter one. The difference between these approaches lies in the order in which the operations of averaging and maximisation are taken - a difference that is reminiscent of the quenched and annealed ways of averaging out the disorder in spin glasses. The results of the present contribution, devoted to comparing these recipes in the case of continuous, conditional network models, indicate that the annealed estimation recipe represents the best alternative to the deterministic one., Comment: 13 pages, 5 figures

Shannon entropy, a cornerstone of information theory, statistical physics and inference methods, is uniquely identified by the Shannon-Khinchin or Shore-Johnson axioms. Generalizations of Shannon entropy, motivated by the study of non-extensive or non-ergodic systems, relax some of these axioms and lead to entropy families indexed by certain `entropic' parameters. In general, the selection of these parameters requires pre-knowledge of the system or encounters inconsistencies. Here we introduce a simple axiom for any entropy family: namely, that no entropic parameter can be inferred from a completely uninformative (uniform) probability distribution. When applied to the Uffink-Jizba-Korbel and Hanel-Thurner entropies, the axiom selects only R\'enyi entropy as viable. It also extends consistency with the Maximum Likelihood principle, which can then be generalized to estimate the entropic parameter purely from data, as we confirm numerically. Remarkably, in a generalized maximum-entropy framework the axiom implies that the maximized log-likelihood always equals minus Shannon entropy, even if the inferred probability distribution maximizes a generalized entropy and not Shannon's, solving a series of problems encountered in previous approaches.

We consider an inhomogeneous Erd\H{o}s-R\'enyi random graph ensemble with exponentially decaying random disconnection probabilities determined by an i.i.d. field of variables with heavy tails and infinite mean associated to the vertices of the graph. This model was recently investigated in the physics literature in Garuccio et al. (2020) as a scale-invariant random graph within the context of network renormalization. From a mathematical perspective, the model fits in the class of scale-free inhomogeneous random graphs whose asymptotic geometrical features have been recently attracting interest. While for this type of graphs several results are known when the underlying vertex variables have finite mean and variance, here instead we consider the case of one-sided stable variables with necessarily infinite mean. To simplify our analysis, we assume that the variables are sampled from a Pareto distribution with parameter $\alpha\in(0,1)$. We start by characterizing the asymptotic distributions of the typical degrees and some related observables. In particular, we show that the degree of a vertex converges in distribution, after proper scaling, to a mixed Poisson law. We then show that correlations among degrees of different vertices are asymptotically non-vanishing, but at the same time a form of asymptotic tail independence is found when looking at the behavior of the joint Laplace transform around zero. Moreover, we present some findings concerning the asymptotic density of wedges and triangles, show a cross-over for the existence of dust (i.e. disconnected nodes), and identify a strongly connected regime in the ensemble., Comment: Some typos and inconsistencies corrected, a new result on connectedness added

In the study of economic networks, econometric approaches interpret the traditional Gravity Model specification as the expected link weight coming from a probability distribution whose functional form can be chosen arbitrarily, while statistical-physics approaches construct maximum-entropy distributions of weighted graphs, constrained to satisfy a given set of measurable network properties. In a recent, companion paper, we integrated the two approaches and applied them to the World Trade Web, i.e. the network of international trade among world countries. While the companion paper dealt only with discrete-valued link weights, the present paper extends the theoretical framework to continuous-valued link weights. In particular, we construct two broad classes of maximum-entropy models, namely the integrated and the conditional ones, defined by different criteria to derive and combine the probabilistic rules for placing links and loading them with weights. In the integrated models, both rules follow from a single, constrained optimization of the continuous Kullback-Leibler divergence; in the conditional models, the two rules are disentangled and the functional form of the weight distribution follows from a conditional, optimization procedure. After deriving the general functional form of the two classes, we turn each of them into a proper family of econometric models via a suitable identification of the econometric function relating the corresponding, expected link weights to macroeconomic factors. After testing the two classes of models on World Trade Web data, we discuss their strengths and weaknesses., Comment: 21 pages, 4 figures, 2 tables

A Chung-Lu random graph is an inhomogeneous Erd\H{o}s-R\'enyi random graph in which vertices are assigned average degrees, and pairs of vertices are connected by an edge with a probability that is proportional to the product of their average degrees, independently for different edges. We derive a central limit theorem for the principal eigenvalue and the components of the principal eigenvector of the adjacency matrix of a Chung-Lu random graph. Our derivation requires certain assumptions on the average degrees that guarantee connectivity, sparsity and bounded inhomogeneity of the graph.

The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this paper, we exploit clustering techniques derived from Random Matrix Theory (RMT) to study a third, intermediate (mesoscopic) market structure that turns out to be the most stable over time and provides important practical insights from a portfolio management perspective. First, we illustrate the benefits, in terms of predicted and realized risk profiles, of constructing portfolios by filtering out both random and systemic co-movements from the correlation matrix. Second, we redefine the portfolio optimization problem in terms of stock clusters that emerge after filtering. Finally, we propose a new wealth allocation scheme that attaches equal importance to stocks belonging to the same community and show that it further increases the reliability of the constructed portfolios. Results are robust across different time spans, cross-sectional dimensions and set of constraints defining the optimization problem, Comment: 21 pages, 8 figures

Recent crises have shown that the knowledge of the structure of input-output networks at the firm level is crucial when studying economic resilience from the microscopic point of view of firms that rewire their connections under supply and demand shocks. Unfortunately, empirical inter-firm network data are rarely accessible and protected by confidentiality. The available methods of network reconstruction from partial information, which have been devised for financial exposures, are inadequate for inter-firm relationships because they treat all pairs of nodes as potentially interacting, thereby overestimating the rewiring capabilities of the system. Here we use two big data sets of transactions in the Netherlands to represent a large portion of the Dutch inter-firm network and document the properties of one of the few analysed networks of this kind. We, then, introduce a generalized maximum-entropy reconstruction method that preserves the production function of each firm in the data, i.e. the input and output flows of each node for each product type. We confirm that the new method becomes increasingly more reliable as a finer product resolution is considered and can therefore be used as a generative model of inter-firm networks with fine production constraints. The likelihood of the model, being related to the entropy, proxies the rewiring capability of the system for a fixed input-output configuration., Comment: main text: 26 pages, 9 figures; supplementary material 21 pages, 9 figures

The asymptotic equivalence of canonical and microcanonical ensembles is a central concept in statistical physics, with important consequences for both theoretical research and practical applications. However, this property breaks down under certain circumstances. The most studied violation of ensemble equivalence requires phase transitions, in which case it has a `restricted' (i.e. confined to a certain region in parameter space) but `strong' (i.e. characterized by a difference between the entropies of the two ensembles that is of the same order as the entropies themselves) form. However, recent research on networks has shown that the presence of an extensive number of local constraints can lead to ensemble nonequivalence even in the absence of phase transitions. This occurs in a `weak' (i.e. leading to a subleading entropy difference) but remarkably `unrestricted' (i.e. valid in the entire parameter space) form. Here we look for more general manifestations of ensemble nonequivalence in arbitrary ensembles of matrices with given margins. These models have widespread applications in the study of spatially heterogeneous and/or temporally nonstationary systems, with consequences for the analysis of multivariate financial and neural time-series, multi-platform social activity, gene expression profiles and other Big Data. We confirm that ensemble nonequivalence appears in `unrestricted' form throughout the entire parameter space due to the extensivity of local constraints. Surprisingly, at the same time it can also exhibit the `strong' form. This novel, simultaneously `strong and unrestricted' form of nonequivalence is very robust and imposes a principled choice of the ensemble. We calculate the proper mathematical quantities to be used in real-world applications.

The World Trade Web (WTW) is the network of international trade relationships among world countries. Characterizing both the local link weights (observed trade volumes) and the global network structure (large-scale topology) of the WTW via a single model is still an open issue. While the traditional Gravity Model (GM) successfully replicates the observed trade volumes by employing macroeconomic properties such as GDP and geographic distance, it, unfortunately, predicts a fully connected network, thus returning a completely unrealistic topology of the WTW. To overcome this problem, two different classes of models have been introduced in econometrics and statistical physics. Econometric approaches interpret the traditional GM as the expected value of a probability distribution that can be chosen arbitrarily and tested against alternative distributions. Statistical physics approaches construct maximum-entropy probability distributions of (weighted) graphs from a chosen set of measurable structural constraints and test distributions resulting from different constraints. Here we compare and integrate the two approaches by considering a class of maximum-entropy models that can incorporate macroeconomic properties used in standard econometric models. We find that the integrated approach achieves a better performance than the purely econometric one. These results suggest that the maximum-entropy construction can serve as a viable econometric framework wherein extensive and intensive margins can be separately controlled for, by combining topological constraints and dyadic macroeconomic variables., Comment: 22 pages, 5 figures, 4 tables

Ecological networks such as plant-pollinator systems and food webs vary in space and time. This variability includes fluctuations in global network properties such as total number and intensity of interactions but also in the local properties of individual nodes such as the number and intensity of species-level interactions. Fluctuations of species properties can significantly affect higher-order network features, e.g. robustness and nestedness. Local fluctuations should therefore be controlled for in applications that rely on null models, especially pattern and perturbation detection. By contrast, most randomization methods for null models used by ecologists treat node-level local properties as hard constraints that cannot fluctuate. Here, we synthesise a set of methods that resolves the limit of hard constraints and is based on statistical mechanics. We illustrate the methods with some practical examples making available open source computer codes. We clarify how this approach can be used by experimental ecologists to detect non-random network patterns with null models that not only rewire but also redistribute interaction strengths by allowing fluctuations in the null model constraints (soft constraints). Null modelling of species heterogeneity through local fluctuations around typical topological and quantitative constraints offers a statistically robust and expanded (e.g. quantitative null models) set of tools to understand the assembly and resilience of ecological networks., Comment: submitted

The field of Financial Networks is a paramount example of the novel applications of Statistical Physics that have made possible by the present data revolution. As the total value of the global financial market has vastly outgrown the value of the real economy, financial institutions on this planet have created a web of interactions whose size and topology calls for a quantitative analysis by means of Complex Networks. Financial Networks are not only a playground for the use of basic tools of statistical physics as ensemble representation and entropy maximization; rather, their particular dynamics and evolution triggered theoretical advancements as the definition of DebtRank to measure the impact and diffusion of shocks in the whole systems. In this review we present the state of the art in this field, starting from the different definitions of financial networks (based either on loans, on assets ownership, on contracts involving several parties -- such as credit default swaps, to multiplex representation when firms are introduced in the game and a link with real economy is drawn) and then discussing the various dynamics of financial contagion as well as applications in financial network inference and validation. We believe that this analysis is particularly timely since financial stability as well as recent innovations in climate finance, once properly analysed and understood in terms of complex network theory, can play a pivotal role in the transformation of our society towards a more sustainable world., Comment: version submitted to Nature Reviews Physics

The asymptotic (non)equivalence of canonical and microcanonical ensembles, describing systems with soft and hard constraints respectively, is a central concept in statistical physics. Traditionally, the breakdown of ensemble equivalence (EE) has been associated with nonvanishing relative canonical fluctuations of the constraints in the thermodynamic limit. Recently, it has been reformulated in terms of a nonvanishing relative entropy density between microcanonical and canonical probabilities. The earliest observations of EE violation required phase transitions or long-range interactions. More recent research on binary networks found that an extensive number of local constraints can also break EE, even in absence of phase transitions. Here we study for the first time ensemble nonequivalence in weighted networks with local constraints. Unlike their binary counterparts, these networks can undergo a form of Bose-Einstein condensation (BEC) producing a core-periphery structure where a finite fraction of the link weights concentrates in the core. This phenomenon creates a unique setting where local constraints coexist with a phase transition. We find surviving relative fluctuations only in the condensed phase, as in more traditional BEC settings. However, we also find a non-vanishing relative entropy density for all temperatures, signalling a breakdown of EE due to the presence of an extensive number of constraints, irrespective of BEC. Therefore, in presence of extensively many local constraints, vanishing relative fluctuations no longer guarantee EE.

Systems with lattice geometry can be renormalized exploiting their coordinates in metric space, which naturally define the coarse-grained nodes. By contrast, complex networks defy the usual techniques, due to their small-world character and lack of explicit geometric embedding. Current network renormalization approaches require strong assumptions (e.g. community structure, hyperbolicity, scale-free topology), thus remaining incompatible with generic graphs and ordinary lattices. Here we introduce a graph renormalization scheme valid for any hierarchy of heterogeneous coarse-grainings, thereby allowing for the definition of 'block-nodes' across multiple scales. This approach identifies a class of scale-invariant networks characterized by a necessary and specific dependence on additive hidden variables attached to nodes, plus optional dyadic factors. If the hidden variables are annealed, they lead to realistic scale-free networks with assortativity and finite local clustering, even in the sparse regime and in absence of geometry. If they are quenched, they can guide the renormalization of real-world networks with node attributes and distance-dependence or communities. As an application, we derive an accurate multiscale model of the International Trade Network applicable across arbitrary geographic partitions. These results highlight a deep conceptual distinction between scale-free and scale-invariant networks, and provide a geometry-free route to renormalization.

For random systems subject to a constraint, the microcanonical ensemble requires the constraint to be met by every realisation ("hard constraint"), while the canonical ensemble requires the constraint to be met only on average ("soft constraint"). It is known that for random graphs subject to topological constraints breaking of ensemble equivalence may occur when the size of the graph tends to infinity, signalled by a non-vanishing specific relative entropy of the two ensembles. We investigate to what extent breaking of ensemble equivalence is manifested through the largest eigenvalue of the adjacency matrix of the graph. We consider two examples of constraints in the dense regime: (1) fix the degrees of the vertices (= the degree sequence); (2) fix the sum of the degrees of the vertices (= twice the number of edges). Example (1) imposes an extensive number of local constraints and is known to lead to breaking of ensemble equivalence. Example (2) imposes a single global constraint and is known to lead to ensemble equivalence. Our working hypothesis is that breaking of ensemble equivalence corresponds to a non-vanishing difference of the expected values of the largest eigenvalue under the two ensembles. We verify that, in the limit as the size of the graph tends to infinity, the difference between the expected values of the largest eigenvalue in the two ensembles does not vanish for (1) and vanishes for (2). A key tool in our analysis is a transfer method that uses relative entropy to determine whether probabilistic estimates can be carried over from the canonical ensemble to the microcanonical ensemble, and illustrates how breaking of ensemble equivalence may prevent this from being possible., Comment: 16 pages. Updated version of the previous work: the result is generalized to broader density regimes for the considered random graph models

One of the most challenging aspects in the analysis and modelling of financial markets, including Credit Default Swap (CDS) markets, is the presence of an emergent, intermediate level of structure standing in between the microscopic dynamics of individual financial entities and the macroscopic dynamics of the market as a whole. This elusive, mesoscopic level of organisation is often sought for via factor models that ultimately decompose the market according to geographic regions and economic industries. However, at a more general level the presence of mesoscopic structure might be revealed in an entirely data-driven approach, looking for a modular and possibly hierarchical organisation of the empirical correlation matrix between financial time series. The crucial ingredient in such an approach is the definition of an appropriate null model for the correlation matrix. Recent research showed that community detection techniques developed for networks become intrinsically biased when applied to correlation matrices. For this reason, a method based on Random Matrix Theory has been developed, which identifies the optimal hierarchical decomposition of the system into internally correlated and mutually anti-correlated communities. Building upon this technique, here we resolve the mesoscopic structure of the CDS market and identify groups of issuers that cannot be traced back to standard industry/region taxonomies, thereby being inaccessible to standard factor models. We use this decomposition to introduce a novel default risk model that is shown to outperform more traditional alternatives., Comment: Quantitative Finance (2021)

Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree of trading overlap among any two investors in that stock. We investigate the effect of crowded trades on stock price stability and show that market clustering has a causal effect on the properties of the tails of the stock return distribution, particularly the positive tail, even after controlling for commonly considered risk drivers. Reduced investor pool diversity could thus negatively affect stock price stability.

Many real networks feature the property of nestedness, i.e. the neighbours of nodes with a few connections are hierarchically nested within the neighbours of nodes with more connections. Despite the abstract simplicity of this notion, different mathematical definitions of nestedness have been proposed, sometimes giving contrasting results. Moreover, there is an ongoing debate on the statistical significance of nestedness, since even random networks where the number of connections (degree) of each node is fixed to its empirical value are typically as nested as real-world ones. Here we propose a clarification that exploits the recent finding that random networks where the degrees are enforced as hard constraints (microcanonical ensembles) are thermodynamically different from random networks where the degrees are enforced as soft constraints (canonical ensembles). We show that if the real network is perfectly nested, then the two ensembles are trivially equivalent and the observed nestedness, independently of its definition, is indeed an unavoidable consequence of the empirical degrees. On the other hand, if the real network is not perfectly nested, then the two ensembles are not equivalent and alternative definitions of nestedness can be even positively correlated in the canonical ensemble and negatively correlated in the microcanonical one. This result disentangles distinct notions of nestedness captured by different metrics and highlights the importance of making a principled choice between hard and soft constraints in null models of ecological networks., Comment: 16 pages, 12 figures

Multilayer networks represent multiple types of connections between the same set of nodes. Clearly, a multilayer description of a system adds value only if the multiplex does not merely consist of independent layers, i.e. if the inter-layer overlap is nontrivial. On real-world multiplexes, it is expected that the observed overlap may partly result from spurious correlations arising from the heterogeneity of nodes and partly from true interdependencies. However, no rigorous way to disentangle these two effects has been developed. In this paper we introduce an unbiased maximum-entropy model of multiplexes with controllable node degrees and controllable overlap. The model can be mapped to a generalized Ising model where the combination of node heterogeneity and inter-layer coupling leads to the possibility of local phase transitions. In particular, we find that an increased heterogeneity in the network results in different critical points for different pairs of nodes, which in turn leads to local phase transitions that may ultimately increase the overlap. The model allows us to quantify how the overlap can be increased by either increasing the heterogeneity of the network (spurious correlation) or the strength of the inter-layer coupling (true correlation), thereby disentangling the two effects. As an application, we show that the empirical overlap in the International Trade Multiplex is not merely a spurious result of the correlation between node degrees across different layers, but requires a non-zero inter-layer coupling in its modeling.

Due to the interconnectedness of financial entities, estimating certain key properties of a complex financial system (e.g. the implied level of systemic risk) requires detailed information about the structure of the underlying network. However, since data about financial linkages are typically subject to confidentiality, network reconstruction techniques become necessary to infer both the presence of connections and their intensity. Recently, several "horse races" have been conducted to compare the performance of the available financial network reconstruction methods. These comparisons, however, were based on arbitrarily-chosen similarity metrics between the real and the reconstructed network. Here we establish a generalised maximum-likelihood approach to rigorously define and compare weighted reconstruction methods. Our generalization maximizes the conditional entropy to solve the problem represented by the fact that the density-dependent constraints required to reliably reconstruct the network are typically unobserved. The resulting approach admits as input any reconstruction method for the purely binary topology and, conditionally on the latter, exploits the available partial information to infer link weights. We find that the most reliable method is obtained by "dressing" the best-performing binary method with an exponential distribution of link weights having a properly density-corrected and link-specific mean value and propose two unbiased (in the sense of maximum conditional entropy) variants of it. While the one named CReMA is perfectly general (as a particular case, it can place optimal weights on a network whose topology is known), the one named CReMB is recommended both in case of full uncertainty about the network topology and if the existence of some links is certain. In these cases, the CReMB is faster and reproduces empirical networks with highest generalised likelihood., Comment: 19 pages, 4 figures, 1 table

In the last 15 years, statistical physics has been a very successful framework to model complex networks. On the theoretical side, this approach has brought novel insights into a variety of physical phenomena, such as self-organisation, scale invariance, emergence of mixed distributions and ensemble non-equivalence, that display unconventional features on heterogeneous networks. At the same time, thanks to their deep connection with information theory, statistical physics and the principle of maximum entropy have led to the definition of null models for networks reproducing some features of real-world systems, but otherwise as random as possible. We review here the statistical physics approach and the various null models for complex networks, focusing in particular on the analytic frameworks reproducing the local network features. We then show how these models have been used to detect statistically significant and predictive structural patterns in real-world networks, as well as to reconstruct the network structure in case of incomplete information. We further survey the statistical physics models that reproduce more complex, semi-local network features using Markov chain Monte Carlo sampling, as well as the models of generalised network structures such as multiplex networks, interacting networks and simplicial complexes., Comment: accepted version (after revision)

When studying social, economic and biological systems, one has often access to only limited information about the structure of the underlying networks. An example of paramount importance is provided by financial systems: information on the interconnections between financial institutions is privacy-protected, dramatically reducing the possibility of correctly estimating crucial systemic properties such as the resilience to the propagation of shocks. The need to compensate for the scarcity of data, while optimally employing the available information, has led to the birth of a research field known as network reconstruction. Since the latter has benefited from the contribution of researchers working in disciplines as different as mathematics, physics and economics, the results achieved so far are still scattered across heterogeneous publications. Most importantly, a systematic comparison of the network reconstruction methods proposed up to now is currently missing. This review aims at providing a unifying framework to present all these studies, mainly focusing on their application to economic and financial networks., Comment: 79 pages, 6 figures, 3 tables

A quantitative understanding of societies requires useful combinations of empirical data and mathematical models. Models of cultural dynamics aim at explaining the emergence of culturally homogeneous groups through social influence. Traditionally, the initial cultural traits of individuals are chosen uniformly at random, the emphasis being on characterizing the model outcomes that are independent of these (`annealed') initial conditions. Here, motivated by an increasing interest in forecasting social behavior in the real world, we reverse the point of view and focus on the effect of specific (`quenched') initial conditions, including those obtained from real data, on the final cultural state. We study the predictability, rigorously defined in an information-theoretic sense, of the \emph{social content} of the final cultural groups (i.e. who ends up in which group) from the knowledge of the initial cultural traits. We find that, as compared to random and shuffled initial conditions, the hierarchical ultrametric-like organization of empirical cultural states significantly increases the predictability of the final social content by largely confining cultural convergence within the lower levels of the hierarchy. Moreover, predictability correlates with the compatibility of short-term social coordination and long-term cultural diversity, a property that has been recently found to be strong and robust in empirical data. We also introduce a null model generating initial conditions that retain the ultrametric representation of real data. Using this ultrametric model, predictability is highly enhanced with respect to the random and shuffled cases, confirming the usefulness of the empirical hierarchical organization of culture for forecasting the outcome of social influence models., Comment: 13 pages, 7 figures

For a random graph subject to a topological constraint, the microcanonical ensemble requires the constraint to be met by every realisation of the graph (`hard constraint'), while the canonical ensemble requires the constraint to be met only on average (`soft constraint'). It is known that breaking of ensemble equivalence may occur when the size of the graph tends to infinity, signalled by a non-zero specific relative entropy of the two ensembles. In this paper we analyse a formula for the relative entropy of generic discrete random structures recently conjectured by Squartini and Garlaschelli. We consider the case of a random graph with a given degree sequence (configuration model), and show that in the dense regime this formula correctly predicts that the specific relative entropy is determined by the scaling of the determinant of the matrix of canonical covariances of the constraints. The formula also correctly predicts that an extra correction term is required in the sparse regime and in the ultra-dense regime. We further show that the different expressions correspond to the degrees in the canonical ensemble being asymptotically Gaussian in the dense regime and asymptotically Poisson in the sparse regime (the latter confirms what we found in earlier work), and the dual degrees in the canonical ensemble being asymptotically Poisson in the ultra-dense regime. In general, we show that the degrees follow a multivariate version of the Poisson-Binomial distribution in the canonical ensemble., Comment: Journal of Statistical Physics, (), 1-19