Wargaming the Financial System

A New Model for Systemic Risk

Imagine if we could conduct financial crisis simulations the way generals conduct war games. Instead of armies and territory, the pieces on the board are banks, hedge funds, currencies, commodities, and credit markets. Systemic risk modelling can be thought of as a “war game for money,” a strategic simulation of financial chaos. This concept, long familiar in foreign exchange circles where currency crises are battled like strategic conflicts, can be expanded across all asset classes. The stakes are high, financial meltdowns can ravage economies just as wars do, yet our tools to anticipate and navigate these crises remain primitive. It’s as if we’re using maps and pushpins in an age of real-time strategy software. To protect the global financial system, we need to dramatically upgrade how we war-game market risks.