Related papers: Taming the Basel Leverage Cycle
Environmental processes resolved at a sufficiently small scale in space and time will inevitably display non-stationary behavior. Such processes are both challenging to model and computationally expensive when the data size is large.…
We study a an optimal high frequency trading problem within a market microstructure model designed to be a good compromise between accuracy and tractability. The stock price is driven by a Markov Renewal Process (MRP), while market orders…
In the context of containment of default contagion in financial networks, we here study a regulator that allocates pre-shock capital or liquidity buffers across banks connected by interbank liabilities and common external asset exposures.…
We study risk-aware linear policy approximations for the optimal operation of an energy system with stochastic wind power, storage, and limited fuel. The resulting problem is a sequential decision-making problem with rolling forecasts. In…
To quantify an operational risk capital charge under Basel II, many banks adopt a Loss Distribution Approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank's internal…
We consider risk-sensitive Markov decision processes (MDPs), where the MDP model is influenced by a parameter which takes values in a compact metric space. We identify sufficient conditions under which small perturbations in the model…
Dynamical systems comprising of multiple components that can be partitioned into distinct blocks originate in many scientific areas. A pertinent example is the interactions between financial assets and selected macroeconomic indicators,…
As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective…
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…
We introduce a general framework for measuring risk in the context of Markov control processes with risk maps on general Borel spaces that generalize known concepts of risk measures in mathematical finance, operations research and…
We introduce and study a non-equilibrium continuous-time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints. The model takes…
Typically, operational risk losses are reported above a threshold. Fitting data reported above a constant threshold is a well known and studied problem. However, in practice, the losses are scaled for business and other factors before the…
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability.…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
Micro-structural models of contagion and systemic risk emphasize that shock propagation is inherently multi-channel, spanning counterparty exposures, short-term funding and roll-over risk, securities cross-holdings, and common-asset…
We study the formation of an optimal interbank network in a model where banks control both their supply of liquidity, through cash reserves, and their exposures to other banks' risky projects. The value of each bank's project may suddenly…
Phased releases are a common strategy in the technology industry for gradually releasing new products or updates through a sequence of A/B tests in which the number of treated units gradually grows until full deployment or deprecation.…
Algorithmic trading relies on machine learning models to make trading decisions. Despite strong in-sample performance, these models often degrade when confronted with evolving real-world market regimes, which can shift dramatically due to…
We consider a discrete-time linear quadratic Gaussian networked control setting where the (full information) observer and controller are separated by a fixed-rate noiseless channel. The minimal rate required to stabilize such a system has…