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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…
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…
Banks play an intrinsic role in any modern economy, recycling capital from savers to borrowers. They are heavily regulated and there have been a significant number of well publicized compliance failings in recent years. This is despite…
We consider the problem of governing systemic risk in a banking system model. The banking system model consists in an initial value problem for a system of stochastic differential equations whose dependent variables are the log-monetary…
Recently popularized randomized methods for principal component analysis (PCA) efficiently and reliably produce nearly optimal accuracy --- even on parallel processors --- unlike the classical (deterministic) alternatives. We adapt one of…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
In this paper the authors study a model for the optimal operation of a bank or insurance company which was recently introduced by Peura and Keppo. The model generalizes a previous one of Milne and Robertson by allowing the bank to raise…
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further…
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…
It is well-known that disciplines such as mechanical engineering, electrical engineering, civil engineering, aerospace engineering, chemical engineering and software engineering witnessed successful applications of reliability engineering…
Sparse Principal Component Analysis (sPCA) is a cardinal technique for obtaining combinations of features, or principal components (PCs), that explain the variance of high-dimensional datasets in an interpretable manner. This involves…
This paper considers an optimal control of a big financial company with debt liability under bankrupt probability constraints. The company, which faces constant liability payments and has choices to choose various production/business…
Principal Component Analysis (PCA) aims to find subspaces spanned by the so-called principal components that best represent the variance in the dataset. The deflation method is a popular meta-algorithm that sequentially finds individual…
When banks fail amidst financial crises, the public criticizes regulators for bailing out or liquidating specific banks, especially the ones that gain attention due to their size or dominance. A comprehensive assessment of regulators,…
This paper investigates two mechanisms of financial contagion that are, firstly, the correlated exposure of banks to the same source of risk, and secondly the direct exposure of banks in the interbank market. It will consider a random…
Cascading failures, triggered by a local perturbation, can be catastrophic and cause irreparable damages in a wide area. Hence, blocking the devastating cascades is an important issue in real world networks. One of the ways to control the…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit…
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…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
In a one-sided limit order book, satisfying some realistic assumptions, where the unaffected price process follows a Levy process, we consider a market agent that wants to liquidate a large position of shares. We assume that the agent has…