Related papers: Taming the Basel Leverage Cycle
The introduction of leverage on prediction-market event contracts raises three structurally distinct questions that have not been addressed jointly: how leverage changes manipulation incentives, how it interacts with informed-trading rents,…
In macroeconomics, an emerging discussion of alternative monetary systems addresses the dimensions of systemic risk in advanced financial systems. Monetary regime changes with the aim of achieving a more sustainable financial system have…
This paper investigates the finite horizon risk-sensitive portfolio optimization in a regime-switching credit market with physical and information-induced default contagion. It is assumed that the underlying regime-switching process has…
The practice of valuation by marking-to-market with current trading prices is seriously flawed. Under leverage the problem is particularly dramatic: due to the concave form of market impact, selling always initially causes the expected…
Notwithstanding the usefulness of system dynamics in analyzing complex policy problems, policy design is far from straightforward and in many instances trial-and-error driven. To address this challenge, we propose to combine system dynamics…
Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously…
This paper studies the dividend and capital injection problem under a diffusion risk model with general discount functions. A proportional cost is imposed when injecting capitals. For exponential discounting as time-consistent benchmark, we…
We study the disequilibrium dynamics of a stylised model of production networks in which firms use perishable and non-substitutable intermediate inputs, so that adverse idiosyncratic productivity shocks can trigger downstream shortages and…
We are looking for the agent-based treatment of the financial markets considering necessity to build bridges between microscopic, agent based, and macroscopic, phenomenological modeling. The acknowledgment that agent-based modeling…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
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…
In recent years, it has become apparent that an isolated microprudential approach to capital adequacy requirements of individual institutions is insufficient. It can increase the homogeneity of the financial system and ultimately the cost…
The article proposes a method of designing a statistically distinguishable rating scale that is not excessive in relation to the existing observation statistics. This allows for more stable validation with a fixed maximum number of…
This paper presents a novel robust trajectory optimization method for constrained nonlinear dynamical systems subject to unknown bounded disturbances. In particular, we seek optimal control policies that remain robustly feasible with…
Auto-deleveraging (ADL) mechanisms are a critical yet understudied component of risk management on cryptocurrency futures exchanges. When available margin and other loss-absorbing resources are insufficient to cover losses following large…
We model the trading activity between a broker and her clients (informed and uninformed traders) as an infinite-horizon stochastic control problem. We derive the broker's optimal dealing strategy in closed form and use this to introduce an…
We develop a neural-network framework for multi-period risk--reward stochastic control problems with constrained two-step feedback policies that may be discontinuous in the state. We allow a broad class of objectives built on a…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the…
This paper studies the finite-horizon robust optimal control of constrained linear systems subject to model mismatch and additive stochastic disturbances. Utilizing the system level synthesis (SLS) parameterization, we propose a novel SLS…
In practice, the value-at-risk (VaR) for a longer holding period is often scaled using the 'square root of time rule'. The VaR is determined for a shorter holding period and then scaled up according to the desired holding period. For…