Related papers: Taming the Basel Leverage Cycle
Physical systems experience nonlinear disturbances which have the potential to disrupt desired behavior. For a particular disturbance, whether or not the system recovers from the disturbance to a desired stable equilibrium point depends on…
This paper is concerned with cost optimization of an insurance company. The surplus of the insurance company is modeled by a controlled regime switching diffusion, where the regime switching mechanism provides the fluctuations of the random…
Analysis of the 2007-8 credit crisis has concentrated on issues of relaxed lending standards, and the perception of irrational behaviour by speculative investors in real estate and other assets. Asset backed securities have been extensively…
We combine forward investment performance processes and ambiguity averse portfolio selection. We introduce the notion of robust forward criteria which addresses the issues of ambiguity in model specification and in preferences and…
The 2008 financial crisis illustrated the need for a thorough, functional understanding of systemic risk in strongly interconnected financial structures. Dynamic processes on complex networks being intrinsically difficult, most recent…
We study the optimal bailout dividend problem with transaction costs for an insurance company, where shareholder payouts align with the arrival times of an independent Poisson process. In this scenario, the underlying risk model follows a…
Portfolio optimization approaches inevitably rely on multivariate modeling of markets and the economy. In this paper, we address three sources of error related to the modeling of these complex systems: 1. oversimplifying hypothesis; 2.…
We address challenges in variable selection with highly correlated data that are frequently present in finance, economics, but also in complex natural systems as e.g. weather. We develop a robustified version of the knockoff framework,…
In order to adapt to the liberalization of the financial sphere started in the Eighties, marked in particular by the end of the framing of credit, the disappearance of the various forms of protection of the State whose profited the banks,…
In this paper we present a multi-rate control architecture for safety critical systems. We consider a high level planner and a low level controller which operate at different frequencies. This multi-rate behavior is described by a piecewise…
To meet the Basel II regulatory requirements for the Advanced Measurement Approaches, the bank's internal model must include the use of internal data, relevant external data, scenario analysis and factors reflecting the business environment…
In many domains, worst-case guarantees on the performance (e.g., prediction accuracy) of a decision function subject to distributional shifts and uncertainty about the environment are crucial. In this work we develop a method to quantify…
This paper addresses the long-standing challenge of estimating the leverage effect from high-frequency data contaminated by dependent, non-Gaussian microstructure noise. We depart from the conventional reliance on pre-averaging or…
Bank crisis is challenging to define but can be manifested through bank contagion. This study presents a comprehensive framework grounded in nonlinear time series analysis to identify potential early warning signals (EWS) for impending…
The mathematical model of a real flexible elastic system with distributed and discrete parameters is considered. It is a partial differential equation with non-classical boundary conditions. Complexity of the boundary conditions results in…
Many banks adopt the Loss Distribution Approach to quantify the operational risk capital charge under Basel II requirements. It is common practice to estimate the capital charge using the 0.999 quantile of the annual loss distribution,…
Multistage risk-averse optimal control problems with nested conditional risk mappings are gaining popularity in various application domains. Risk-averse formulations interpolate between the classical expectation-based stochastic and minimax…
We consider a model of contagion in financial networks recently introduced in the literature, and we characterize the effect of a few features empirically observed in real networks on the stability of the system. Notably, we consider the…
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
We present a mathematical model of a market with $m$ shares traded across $n$ investor groups, each one with similar motivations and trading strategies. The market of each asset consists of a fixed amount of cash and shares (no additions…