Related papers: Taming the Basel Leverage Cycle
Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the stead-state. Here we build on a…
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…
Predictive models are often deployed through existing decision policies that stakeholders are reluctant to change unless a risk constraint requires intervention. We study risk-controlled post-processing: given a deterministic baseline…
We propose a new Bayesian heteroskedastic Markov-switching structural vector autoregression with data-driven time-varying identification. The model selects alternative exclusion restrictions over time and, as a condition for the search,…
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
Data-driven risk analysis involves the inference of probability distributions from measured or simulated data. In the case of a highly reliable system, such as the electricity grid, the amount of relevant data is often exceedingly limited,…
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 propose a tractable unified framework to study the evolution and interaction of model-misspecification concerns and complexity aversion in repeated decision problems. This aims to capture environments where decision makers worry that…
We forecast the full conditional distribution of macroeconomic outcomes by systematically integrating three key principles: using high-dimensional data with appropriate regularization, adopting rigorous out-of-sample validation procedures,…
The 2023 U.S. banking crisis propagated not through direct financial linkages but through a high-frequency, information-based contagion channel. This paper moves beyond exploration analysis to test the "too-similar-to-fail" hypothesis,…
In the realm of big data, discerning patterns in nonlinear systems affected by external control inputs is increasingly challenging. Our approach blends the coarse-graining strengths of centroid-based unsupervised clustering with the clarity…
This work discusses the benefits of constrained portfolio turnover strategies for small to medium-sized portfolios. We propose a dynamic multi-period model that aims to minimize transaction costs and maximize terminal wealth levels whilst…
We study a continuous-time portfolio choice problem for an investor whose state-dependent preferences are determined by an exogenous factor that evolves as an It\^o diffusion process. Since risk attitudes at the end of the investment…
We quantify the value-at-risk of inter-vehicle collision and detachment for a class of platoons, which are governed by second-order dynamics in presence of communication time-delay and exogenous stochastic noise. Closed-form expressions for…
This paper introduces ergodic-risk criteria, which capture long-term cumulative risks associated with controlled Markov chains through probabilistic limit theorems--in contrast to existing methods that require assumptions of either finite…
Real-world three-phase microgrids face two interconnected challenges: 1. time-varying uncertainty from renewable generation and demand, and 2. persistent phase imbalances caused by uneven distributed energy resources DERs, load asymmetries,…
The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products…
This paper analyzes the bank lending channel and the heterogeneous effects on the euro area, providing evidence that the channel is indeed working. The analysis of the transmission mechanism is based on structural impulse responses to an…
Most bandit policies are designed to either minimize regret in any problem instance, making very few assumptions about the underlying environment, or in a Bayesian sense, assuming a prior distribution over environment parameters. The former…
We consider a discrete-time dividend payout problem with risk sensitive shareholders. It is assumed that they are equipped with a risk aversion coefficient and construct their discounted payoff with the help of the exponential premium…