Related papers: Modeling Financial System with Interbank Flows, Bo…

We consider networks of banks with assets and liabilities. Some banks may be insolvent, and a central bank can decide which insolvent banks, if any, to bail out. We view bailouts as an optimization problem where the central bank has given…

We derive a closed form solution for an optimal control problem related to an interbank lending schemes subject to terminal probability constraints on the failure of banks which are interconnected through a financial network. The derived…

The current global financial system forms a highly interconnected network where a default in one of its nodes can propagate to many other nodes, causing a catastrophic avalanche effect. In this paper we consider the problem of reducing the…

In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…

The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…

Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…

We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…

We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary…

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…

In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…

We study the difference between the level of systemic risk that is empirically measured on an interbank network and the risk that can be deduced from the balance sheets composition of the participating banks. Using generalised DebtRank…

We consider a government that aims at reducing the debt-to-gross domestic product (GDP) ratio of a country. The government observes the level of the debt-to-GDP ratio and an indicator of the state of the economy, but does not directly…

Agents buy and sell services. All services are of equal quality. Buyers choose sellers at random. Monetary and fiscal policies are imposed by a central bank and a central government. Credit is supplied by a commercial banking system.…

In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…

We propose a minimal model of the secured interbank network able to shed light on recent money markets puzzles. We find that excess liquidity emerges due to the interactions between the reserves and liquidity ratio constraints; the…

In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Default may occur in equilibrium as it prevents the government…

The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…

We examine optimal regulation of financial networks with debt interdependencies between financial firms. We first show that firms often have an incentive to choose excessively risky portfolios and overly correlate their portfolios with…

Deciding bank interest rates has been a long-standing challenge in finance. It is crucial to ensure that the selected rates balance market share and profitability. However, traditional approaches typically focus on the interest rate changes…

In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…