Related papers: A Dynamical Model for Operational Risk in Banks

We describe an abstract control-theoretic framework in which the validity of the dynamic programming principle can be established in continuous time by a verification of a small number of structural properties. As an application we treat…

This work proposes a way to align statistical modeling with decision making. We provide a method that propagates the uncertainty in predictive modeling to the uncertainty in operational cost, where operational cost is the amount spent by…

We propose and analyze numerically a simple dynamical model that describes the firm behaviors under uncertainty of demand forecast. Iterating this simple model and varying some parameters values we observe a wide variety of market dynamics…

The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…

We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…

Identifying and understanding modular organizations is centrally important in the study of complex systems. Several approaches to this problem have been advanced, many framed in information-theoretic terms. Our treatment starts from the…

Machine learning models are increasingly used in a wide variety of financial settings. The difficulty of understanding the inner workings of these systems, combined with their wide applicability, has the potential to lead to significant new…

We present a scheme for sequential decision making with a risk-sensitive objective and constraints in a dynamic environment. A neural network is trained as an approximator of the mapping from parameter space to space of risk and policy with…

In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…

We study the difference between the level of systemic risk that is empirically measured on an interbank network and the risk that can be deduced from the balance sheets composition of the participating banks. Using generalised DebtRank…

Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…

The business model represents an increasingly important management concept. However, progress in research related to the concept is currently inhibited from inconsistencies in terms of formalizing and therewith also empirically measuring…

In the trend towards tolerating hardware unreliability, accuracy is exchanged for cost savings. Running on less reliable machines, "functionally correct" code becomes risky and one needs to know how risk propagates so as to mitigate it.…

Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for…

Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…

The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…

Many banks adopt the Loss Distribution Approach to quantify the operational risk capital charge under Basel II requirements. It is common practice to estimate the capital charge using the 0.999 quantile of the annual loss distribution,…

In recent times we hear increasingly often about cyber attacks on various commercial and strategic sites that manage to escape any defense. In this article, we model such attacks on networks via stochastic processes and predict the time of…

The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…

A controversy involving loan loss provisions in banks concerns their relationship with the business cycle. While international accounting standards for recognizing provisions (incurred loss model) would presumably be pro-cyclical,…