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When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of…
A simple quantitative example of a reflexive feedback process and the resulting price dynamics after an exogenous price shock to a financial network is presented. Furthermore, an outline of a theory that connects financial reflexivity,…
We use the theory of complex networks in order to quantitatively characterize the formation of communities in a particular financial market. The system is composed by different banks exchanging on a daily basis loans and debts of liquidity.…
This paper presents an analytically tractable and practically-oriented model of non-linear dynamics of a multi-asset market in the limit of a large number of assets. The asset price dynamics are driven by money flows into the market from…
We present a model describing the competition between information transmission and decision making in financial markets. The solution of this simple model is recalled, and possible variations discussed. It is shown numerically that despite…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
This paper shows that in suitable markets, even with out-of-equilibrium trade allowed, a simple price update rule leads to rapid convergence toward the equilibrium. In particular, this paper considers a Fisher market repeated over an…
In this study, we propose a new multi-objective portfolio optimization with idiosyncratic and systemic risks for financial networks. The two risks are measured by the idiosyncratic variance and the network clustering coefficient derived…
Several structural results for the set of competitive equilibria in trading networks with frictions are established: The lattice theorem, the rural hospitals theorem, the existence of side-optimal equilibria, and a…
The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured…
We introduce an event based framework of directional changes and overshoots to map continuous financial data into the so-called Intrinsic Network - a state based discretisation of intrinsically dissected time series. Defining a method for…
We study a model of the Fiscal Theory of the Price Level (FTPL) in a Bewley-Huggett-Aiyagari framework with heterogeneous agents. The model is set in continuous time, and ex post heterogeneity arises due to idiosyncratic, uninsurable income…
A financial system contains many elements networked by their relationships. Extensive works show that topological structure of the network stores rich information on evolutionary behaviors of the system such as early warning signals of…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer…
This paper characterizes equilibrium properties of a broad class of economic models that allow multiple heterogeneous agents to interact in heterogeneous manners across several markets. Our key contribution is a new theorem providing…
We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a…
We study a dynamic asset pricing problem in which a representative agent is ambiguous about the aggregate endowment growth rate and trades a risky stock, human capital, and a risk-free asset to maximize her preference value of consumption…