Related papers: Taming the Basel Leverage Cycle
Inspired by the recent debate on the macroeconomic implications of the new bank regulatory standards known as Basel III, we tried to find out in this study that the impact of Basel III liquidity and capital requirements in Bangladesh…
Evaluation of systemic risk in networks of financial institutions in general requires information of inter-institution financial exposures. In the framework of Debt Rank algorithm, we introduce an approximate method of systemic risk…
This thesis mainly focuses on two problems in capital structure and individual's life-cycle portfolio choice. In the first problem, we derive a stochastic control model to optimize banks' dividend and recapitalization policies and calibrate…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient…
We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for…
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
Measuring the contribution of a bank or an insurance company to overall systemic risk is a key concern, particularly in the aftermath of the 2007--2009 financial crisis and the 2020 downturn. In this paper, we derive worst-case and…
Peters (2011a) defined an optimal leverage which maximizes the time-average growth rate of an investment held at constant leverage. It was hypothesized that this optimal leverage is attracted to 1, such that, e.g., leveraging an investment…
Risk allocation, the decomposition of a portfolio-wide risk measure into component contributions, is a fundamental problem in financial risk management due to the non-additive nature of risk measures, the layered organizational structures…
We study a dynamical model of interconnected firms which allows for certain market imperfections and frictions, restricted here to be myopic price forecasts and slow adjustment of production. Whereas the standard rational equilibrium is…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
We propose a simple model of inter-bank borrowing and lending where the evolution of the log-monetary reserves of $N$ banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the…
Risk-sensitive control balances performance with resilience to unlikely events in uncertain systems. This paper introduces ergodic-risk criteria, which capture long-term cumulative risks through probabilistic limit theorems. By ensuring the…
Biased stochastic estimators, such as finite-differences for noisy gradient estimation, often contain parameters that need to be properly chosen to balance impacts from the bias and the variance. While the optimal order of these parameters…
We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and…
This paper analyzes the stability of optimal policies in the long-run stochastic control framework with an averaged risk-sensitive criterion for discrete-time MDPs on finite state-action space. In particular, we study the robustness of…
Local detailed balance (LDB) is a central guiding principle for modeling nonequilibrium stochastic dynamics, yet it only constrains the ratio of forward and backward transition rates and does not fix the steady state. Although the…
We consider a system of diffusion processes that interact through their empirical mean and have a stabilizing force acting on each of them, corresponding to a bistable potential. There are three parameters that characterize the system: the…