Related papers: Assessing systemic risk due to fire sales spillove…
Entropic risk (ERisk) is an established risk measure in finance, quantifying risk by an exponential re-weighting of rewards. We study ERisk for the first time in the context of turn-based stochastic games with the total reward objective.…
In this paper, we develop a general theory for the estimation of the transition probabilities of reversible Markov chains using the maximum entropy principle. A broad range of physical models can be studied within this approach. We use…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
The maximum entropy principle from statistical mechanics states that a closed system attains an equilibrium distribution that maximizes its entropy. We first show that for graphs with fixed number of edges one can define a stochastic edge…
Empirical measures of financial connectedness based on Forecast Error Variance Decompositions (FEVDs) often yield dense network structures that obscure true transmission channels and complicate the identification of systemic risk. This…
It is of growing concern to ensure resilience in power distribution systems to extreme weather events. However, there are no clear methodologies or metrics available for resilience assessment that allows system planners to assess the impact…
The dramatic increase of autonomous systems subject to variable environments has given rise to the pressing need to consider risk in both the synthesis and verification of policies for these systems. This paper aims to address a few…
Financial risk detection in Enterprise Resource Planning (ERP) systems is an important but underexplored application of machine learning. Published studies in this area tend to suffer from vague dataset descriptions, leakage-prone…
The maximum entropy principle advocates to evaluate events' probabilities using a distribution that maximizes entropy among those that satisfy certain expectations' constraints. Such principle can be generalized for arbitrary decision…
This paper proposes a novel methodology for probabilistic dynamic security assessment and enhancement of power systems that considers load and generation variability, N-2 contingencies, and uncertain cascade propagation caused by uncertain…
Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss…
We propose a dynamical model for the estimation of Operational Risk in banking institutions. Operational Risk is the risk that a financial loss occurs as the result of failed processes. Examples of operational losses are the ones generated…
We consider an insurance company which faces financial risk in the form of insurance claims and market-dependent surplus fluctuations. The company aims to simultaneously control its terminal wealth (e.g. at the end of an accounting period)…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
The aim of this paper is to study a new methodological framework for systemic risk measures by applying deep learning method as a tool to compute the optimal strategy of capital allocations. Under this new framework, systemic risk measures…
We study an open problem of risk-sensitive portfolio allocation in a regime-switching credit market with default contagion. The state space of the Markovian regime-switching process is assumed to be a countably infinite set. To characterize…
Motivated by the AIG bailout case in the financial crisis of 2007-2008, we consider an insurer who wants to maximize the expected utility of the terminal wealth by selecting optimal investment and risk control strategies. The insurer's risk…
Systemic risk is the risk that a company- or industry-level risk could trigger a huge collapse of another or even the whole institution. Various systemic risk measures have been proposed in the literature to quantify the domino and…
We apply the maximum entropy principle to economic systems in equilibrium and find the density function for the market's wealth. This is the same as price density which is used for insurance pricing. The risk aversion parameter of the agent…
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…