FuturICT foundations are social science, complex systems science, and ICT. The main concerns and challenges in the science of complex systems in the context of FuturICT are laid out in this paper with special emphasis on the Complex Systems route to Social Sciences. This include complex systems having: many heterogeneous interacting parts; multiple scales; complicated transition laws; unexpected or unpredicted emergence; sensitive dependence on initial conditions; path-dependent dynamics; networked hierarchical connectivities; interaction of autonomous agents; self-organisation; non-equilibrium dynamics; combinatorial explosion; adaptivity to changing environments; co-evolving subsystems; ill-defined boundaries; and multilevel dynamics. In this context, science is seen as the process of abstracting the dynamics of systems from data. This presents many challenges including: data gathering by large-scale experiment, participatory sensing and social computation, managing huge distributed dynamic and heterogeneous databases; moving from data to dynamical models, going beyond correlations to cause-effect relationships, understanding the relationship between simple and comprehensive models with appropriate choices of variables, ensemble modeling and data assimilation, modeling systems of systems of systems with many levels between micro and macro; and formulating new approaches to prediction, forecasting, and risk, especially in systems that can reflect on and change their behaviour in response to predictions, and systems whose apparently predictable behaviour is disrupted by apparently unpredictable rare or extreme events. These challenges are part of the FuturICT agenda.

The aim of this paper is twofold: to provide a theoretical framework and to give further empirical support to Shiller's test of the appropriateness of prices in the stock market based on the Cyclically Adjusted Price Earnings (CAPE) ratio. We devote the first part of the paper to the empirical analysis and we show that the CAPE is a powerful predictor of future long run performances of the market not only for the U.S. but also for countries such as Belgium, France, Germany, Japan, the Netherlands, Norway, Sweden and Switzerland. We show four relevant empirical facts: i) the striking ability of the logarithmic averaged earning over price ratio to predict returns of the index, ii) how this evidence increases switching from returns to gross returns, iii) moving over different time horizons, the regression coefficients are constant in a statistically robust way, and iv) the poorness of the prediction when the precursor is adjusted with long term interest rate. In the second part we provide a theoretical justification of the empirical observations. Indeed we propose a simple model of the price dynamics in which the return growth depends on three components: a) a momentum component, naturally justified in terms of agents' belief that expected returns are higher in bullish markets than in bearish ones; b) a fundamental component proportional to the log earnings over price ratio at time zero, from which the actual stock price may deviate as an effect of random external disturbances, and c) a driving component ensuring the diffusive behaviour of stock prices. Under these assumptions, we are able to prove that, if we consider a sufficiently large number of periods, the expected rate of return and the expected gross return are linear in the initial time value of the log earnings over price ratio, and their variance goes to zero with rate of convergence equal to minus one.

The aim of this article is to briefly review and make new studies of correlations and co-movements of stocks, so as to understand the "seasonalities" and market evolution. Using the intraday data of the CAC40, we begin by reasserting the findings of Allez and Bouchaud [New J. Phys. 13, 025010 (2011)]: the average correlation between stocks increases throughout the day. We then use multidimensional scaling (MDS) in generating maps and visualizing the dynamic evolution of the stock market during the day. We do not find any marked difference in the structure of the market during a day. Another aim is to use daily data for MDS studies, and visualize or detect specific sectors in a market and periods of crisis. We suggest that this type of visualization may be used in identifying potential pairs of stocks for "pairs trade".

The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer simulation model to analyze the risk of insolvency of banks and defaults in a bank credit network. Simulation experiments reproduce the knock-on default, and quantify the impact which is imposed on the number of bank defaults by heterogeneity of the bank credit network, the equity capital ratio of banks, and the capital surcharge on big banks.

The potential approach is a general and simple method for modelling interest rates, foreign exchange rates, and in principle other types of financial assets. This paper takes data on some liquid interest rate derivatives, and fits potential models using a small finite-state Markov chain as the base Markov process.

In this paper, we propose a simple randomized protocol for identifying trusted nodes based on personalized trust in large scale distributed networks. The problem of identifying trusted nodes, based on personalized trust, in a large network setting stems from the huge computation and message overhead involved in exhaustively calculating and propagating the trust estimates by the remote nodes. However, in any practical scenario, nodes generally communicate with a small subset of nodes and thus exhaustively estimating the trust of all the nodes can lead to huge resource consumption. In contrast, our mechanism can be tuned to locate a desired subset of trusted nodes, based on the allowable overhead, with respect to a particular user. The mechanism is based on a simple exchange of random walk messages and nodes counting the number of times they are being hit by random walkers of nodes in their neighborhood. Simulation results to analyze the effectiveness of the algorithm show that using the proposed algorithm, nodes identify the top trusted nodes in the network with a very high probability by exploring only around 45% of the total nodes, and in turn generates nearly 90% less overhead as compared to an exhaustive trust estimation mechanism, named TrustWebRank. Finally, we provide a measure of the global trustworthiness of a node; simulation results indicate that the measures generated using our mechanism differ by only around 0.6% as compared to TrustWebRank.

We consider a system of diffusion processes that interact through their empirical mean and have a stabilizing force acting on each of them, corresponding to a bistable potential. There are three parameters that characterize the system: the strength of the intrinsic stabilization, the strength of the external random perturbations, and the degree of cooperation or interaction between them. The latter is the rate of mean reversion of each component to the empirical mean of the system. We interpret this model in the context of systemic risk and analyze in detail the effect of cooperation between the components, that is, the rate of mean reversion. We show that in a certain regime of parameters increasing cooperation tends to increase the stability of the individual agents but it also increases the overall or systemic risk. We use the theory of large deviations of diffusions interacting through their mean field.

We study the structure of inter-industry relationships using networks of money flows between industries in 20 national economies. We find these networks vary around a typical structure characterized by a Weibull link weight distribution, exponential industry size distribution, and a common community structure. The community structure is hierarchical, with the top level of the hierarchy comprising five industry communities: food industries, chemical industries, manufacturing industries, service industries, and extraction industries.

We characterize the distributions of size and duration of avalanches propagating in complex networks. By an avalanche we mean the sequence of events initiated by the externally stimulated `excitation' of a network node, which may, with some probability, then stimulate subsequent firings of the nodes to which it is connected, resulting in a cascade of firings. This type of process is relevant to a wide variety of situations, including neuroscience, cascading failures on electrical power grids, and epidemology. We find that the statistics of avalanches can be characterized in terms of the largest eigenvalue and corresponding eigenvector of an appropriate adjacency matrix which encodes the structure of the network. By using mean-field analyses, previous studies of avalanches in networks have not considered the effect of network structure on the distribution of size and duration of avalanches. Our results apply to individual networks (rather than network ensembles) and provide expressions for the distributions of size and duration of avalanches starting at particular nodes in the network. These findings might find application in the analysis of branching processes in networks, such as cascading power grid failures and critical brain dynamics. In particular, our results show that some experimental signatures of critical brain dynamics (i.e., power-law distributions of size and duration of neuronal avalanches), are robust to complex underlying network topologies.

Given a budget and arbitrary cost for selecting each node, the budgeted influence maximization (BIM) problem concerns selecting a set of seed nodes to disseminate some information that maximizes the total number of nodes influenced (termed as influence spread) in social networks at a total cost no more than the budget. Our proposed seed selection algorithm for the BIM problem guarantees an approximation ratio of (1 - 1/sqrt(e)). The seed selection algorithm needs to calculate the influence spread of candidate seed sets, which is known to be #P-complex. Identifying the linkage between the computation of marginal probabilities in Bayesian networks and the influence spread, we devise efficient heuristic algorithms for the latter problem. Experiments using both large-scale social networks and synthetically generated networks demonstrate superior performance of the proposed algorithm with moderate computation costs. Moreover, synthetic datasets allow us to vary the network parameters and gain important insights on the impact of graph structures on the performance of different algorithms.