Related papers: Optimal portfolio for a robust financial system
Risk control and optimal diversification constitute a major focus in the finance and insurance industries as well as, more or less consciously, in our everyday life. We present a discussion of the characterization of risks and of the…
We present an analytical model to study the role of expectation feedbacks and overlapping portfolios on systemic stability of financial systems. Building on [Corsi et al., 2016], we model a set of financial institutions having Value at Risk…
In this paper, we employ Credit Default Swaps (CDS) to model the joint and conditional distress probabilities of banks in Europe and the U.S. using factor copulas. We propose multi-factor, structured factor, and factor-vine models where the…
In this paper we study the implications of contingent payments on the clearing wealth in a network model of financial contagion. We consider an extension of the Eisenberg-Noe financial contagion model in which the nominal interbank…
The economical world consists of a highly interconnected and interdependent network of firms. Here we develop temporal and structural network tools to analyze the state of the economy. Our analysis indicates that a strong clustering can be…
We construct a continuous time model for price-mediated contagion precipitated by a common exogenous stress to the banking book of all firms in the financial system. In this setting, firms are constrained so as to satisfy a risk-weight…
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the Australian banking sector against insolvency. We outline the mathematical foundations of regulatory capital for…
The recent financial crisis has sharply revealed that current understanding of the global financial system is more than limited. In the recovery plan the confidence in the underlying theory is crucial. To address the problem we propose the…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
We consider settings in which the distribution of a multivariate random variable is partly ambiguous. We assume the ambiguity lies on the level of the dependence structure, and that the marginal distributions are known. Furthermore, a…
Cascading failures, such as bankruptcies and defaults, pose a serious threat for the resilience of the global financial system. Indeed, because of the complex investment and cross-holding relations within the system, failures can occur as a…
We report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally…
Since decades, the data science community tries to propose prediction models of financial time series. Yet, driven by the rapid development of information technology and machine intelligence, the velocity of today's information leads to…
This paper examines replication portfolio construction in incomplete markets - a key problem in financial engineering with applications in pricing, hedging, balance sheet management, and energy storage planning. We model this as a…
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…
This paper presents a unified multi-asset, multi-group asset-flow model that integrates three foundational frameworks from the behavioral finance literature. The model captures the dynamics of financial markets where multiple assets are…
Since the latest financial crisis, the idea of systemic risk has received considerable interest. In particular, contagion effects arising from cross-holdings between interconnected financial firms have been studied extensively. Drawing…
By analysing the diffusive dynamics of epidemics and of distress in complex networks, we study the effect of the assortativity on the robustness of the networks. We first determine by spectral analysis the thresholds above which…
This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…