Related papers: Optimization of Fire Sales and Borrowing in System…
We consider a network of banks that optimally choose a strategy of asset liquidations and borrowing in order to cover short term obligations. The borrowing is done in the form of collateralized repurchase agreements, the haircut level of…
This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets (e.g., currencies). In so doing, we develop a multi-layered financial network that extends the single network…
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 &…
Bank's asset fire sales and recourse to central bank credit are modelled with continuous asset liquidity, allowing to derive the liability structure of a bank. Both asset sales liquidity and the central bank collateral framework are modeled…
Trading activities in financial systems create various channels through which systemic risk can propagate. An important contagion channel is financial fire sales, where a bank failure causes asset prices to fall due to asset liquidation,…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that…
Fire sales are among the major drivers of market instability in modern financial systems. Due to iterated distressed selling and the associated price impact, initial shocks to some institutions can be amplified dramatically through the…
This paper provides a framework for modeling the financial system with multiple illiquid assets during a crisis. This work generalizes the paper by Amini, Filipovic and Minca (2016) by allowing for differing liquidation strategies. The main…
Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
A financial system is represented by a network, where nodes correspond to banks, and directed labeled edges correspond to debt contracts between banks. Once a payment schedule has been defined, where we assume that a bank cannot refuse a…
The complex interactions between algorithmic trading agents can have a severe influence on the functioning of our economy, as witnessed by recent banking crises and trading anomalies. A common phenomenon in these situations are fire sales,…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations.…
Financial networks are characterized by complex structures of mutual obligations. These obligations are fulfilled entirely or in part (when defaults occur) via a mechanism called clearing, which determines a set of payments that settle the…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
We define and study a lending game to model the interbank money market, in which lending banks strategically allocate their cash to borrowing banks. The interest rate offered by each borrowing bank is within the interest rate corridor set…
We propose a simple model of inter-bank borrowing and lending where the evolution of the log-monetary reserves of $N$ banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the…
We study the impact of regulatory capital constraints on fire sales and financial stability in a large banking system using a mean field game model. In our model banks adjust their holdings of a risky asset via trading strategies with…