Related papers: Optimal portfolio for a robust financial system
We discuss the systemic risk implied by the interbank exposures reconstructed with the maximum entropy method. The maximum entropy method severely underestimates the risk of interbank contagion by assuming a fully connected network, while…
Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…
A theoretical model of systemic-risk propagation of financial market is analyzed for stability. The state equation is an unsteady diffusion equation with a nonlinear logistic growth term, where the diffusion process captures the spread of…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
Accurately defining, measuring and mitigating risk is a cornerstone of financial risk management, especially in the presence of financial contagion. Traditional correlation-based risk assessment methods often struggle under volatile market…
In this paper, we introduce an impact centrality measure to evaluate shock propagation on financial networks capturing a notion of contagion and systemic risk contributions, permitting comparisons of these risks over time. In addition, we…
Recent developments in deep learning techniques have motivated intensive research in machine learning-aided stock trading strategies. However, since the financial market has a highly non-stationary nature hindering the application of…
The negative externalities from an individual bank failure to the whole system can be huge. One of the key purposes of bank regulation is to internalize the social costs of potential bank failures via capital charges. This study proposes a…
Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash…
The optimal allocation of assets has been widely discussed with the theoretical analysis of risk measures, and pessimism is one of the most attractive approaches beyond the conventional optimal portfolio model. The $\alpha$-risk plays a…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
Bank crisis is challenging to define but can be manifested through bank contagion. This study presents a comprehensive framework grounded in nonlinear time series analysis to identify potential early warning signals (EWS) for impending…
We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio…
The design of an efficient curing policy, able to stem an epidemic process at an affordable cost, has to account for the structure of the population contact network supporting the contagious process. Thus, we tackle the problem of…
Measuring systemic risk or fragility of financial systems is a ubiquitous task of fundamental importance in analyzing market efficiency, portfolio allocation, and containment of financial contagions. Recent attempts have shown that…
We develop an agent-based simulation of the catastrophe insurance and reinsurance industry and use it to study the problem of risk model homogeneity. The model simulates the balance sheets of insurance firms, who collect premiums from…