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This paper introduces a comprehensive framework for Financial Information Theory by applying information-theoretic concepts such as entropy, Kullback-Leibler divergence, mutual information, normalized mutual information, and transfer…
Power systems are getting more complex than ever and are consequently operating close to their limit of stability. Moreover, with the increasing demand of renewable wind generation, and the requirement to maintain a secure power system, the…
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…
This study considers an optimal reinsurance, investment, and dividend strategy control problem for insurance companies in a regulated Markov regime-switching environment, intending to maximize long-run average reward. Unlike existing single…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
We present a general holistic theory for the organization of complex networks, both human-engineered and naturally-evolved. Introducing concepts of value of interactions and satisfaction as generic network performance measures, we show that…
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…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…
For reducing threat propagation within an inter-connected network, it is essential to distribute the defense investment optimally. Most electric power utilities are resource constrained, yet how to account for costs while designing threat…
Probabilistic reasoning systems combine different probabilistic rules and probabilistic facts to arrive at the desired probability values of consequences. In this paper we describe the MESA-algorithm (Maximum Entropy by Simulated Annealing)…
Accurate modeling of operational risk is important for a bank and the finance industry as a whole to prepare for potentially catastrophic losses. One approach to modeling operational is the loss distribution approach, which requires a bank…
Accounting for the non-normality of asset returns remains challenging in robust portfolio optimization. In this article, we tackle this problem by assessing the risk of the portfolio through the "amount of randomness" conveyed by its…
Securing an adequate supply of dispatchable resources is critical for keeping a power system reliable under high penetrations of variable generation. Traditional resource adequacy mechanisms are poorly suited to exploiting the growing…
Analysis of a probabilistic system often requires to learn the joint probability distribution of its random variables. The computation of the exact distribution is usually an exhaustive precise analysis on all executions of the system. To…
A growing body of studies on systemic risk in financial markets has emphasized the key importance of taking into consideration the complex interconnections among financial institutions. Much effort has been put in modeling the contagion…
The potential for cascading failure in power systems adds substantially to overall reliability risk. Monte Carlo sampling can be used with a power system model to estimate this impact, but doing so is computationally expensive. This paper…
This paper provides a framework for modeling the financial system with multiple illiquid assets when liquidation of illiquid assets is caused by failure to meet a leverage requirement. This extends the network model of Cifuentes, Shin &…
We consider the problem of accurately measuring the credit risk of a portfolio consisting of loss exposures such as loans, bonds and other financial assets. We are particularly interested in the probability of large portfolio losses. We…
Recently, large-scale cascading failures in complex systems have garnered substantial attention. Such extreme events have been treated as an integral part of the self-organized criticality (SOC). Recent empirical work has suggested that…