Related papers: Taming the Basel Leverage Cycle
Dynamical systems can be prone to severe fluctuations due to the presence of chaotic dynamics. This paper explains for a toy chaotic economic model how such a system can be regulated by the application of relatively weak control to keep the…
In this article we consider the ergodic risk-sensitive control problem for a large class of multidimensional controlled diffusions on the whole space. We study the minimization and maximization problems under either a blanket stability…
When the planning horizon is long, and the safe asset grows indefinitely, isoelastic portfolios are nearly optimal for investors who are close to isoelastic for high wealth, and not too risk averse for low wealth. We prove this result in a…
In complex systems like financial market, risk tolerance of individuals is crucial for system resilience.The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for…
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…
We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit…
We develop an exchange rate target zone model with finite exit time and non-Gaussian tails. We show how the tails are a consequence of time-varying investor risk aversion, which generates mean-preserving spreads in the fundamental…
This paper introduces a novel framework to study default dependence and systemic risk in a financial network that evolves over time. We analyse several indicators of risk, and develop a new latent space model to assess the health of key…
We formulate a discrete-time Bayesian stochastic volatility model for high-frequency stock-market data that directly accounts for microstructure noise, and outline a Markov chain Monte Carlo algorithm for parameter estimation. The methods…
We consider a model for systemic risk comprising of a system of diffusion processes, interacting through their empirical mean. Each process is subject to a confining double-well potential with some uncertainty in the coefficients,…
This paper considers time-inconsistent problems when control and stopping strategies are required to be made simultaneously (called stopping control problems by us). We first formulate the timeinconsistent stopping control problems under…
Model Predictive Control (MPC) is a powerful framework for constrained control, but its performance and safety can be severely degraded when the prediction model is learned online and thus remains uncertain. In this work, we develop a…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
In this study, we introduce an analytics framework, the Bank Risk Interlinkage with Dynamic Graph and Event Simulations (BRIDGES), to capture the systemic risks associated with the growing economic influence of the BRICS nations. This…
The control of large queueing networks is a notoriously difficult problem. Recently, an interesting new policy design framework for the control problem called h-MaxWeight has been proposed: h-MaxWeight is a natural generalization of the…
This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under…
In many countries financial service providers have to elicit their customers risk preferences, when offering products and services. For instance, in the Netherlands pension funds will be legally obliged to factor in their clients risk…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
Supply chain disruptions constitute an often underestimated risk for financial stability. As in financial networks, systemic risks in production networks arises when the local failure of one firm impacts the production of others and might…
The main challenge for adaptive regulation of linear-quadratic systems is the trade-off between identification and control. An adaptive policy needs to address both the estimation of unknown dynamics parameters (exploration), as well as the…