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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…
This paper studies a systemic risk control problem by the central bank, which dynamically plans monetary supply to stabilize the interbank system with borrowing and lending activities. Facing both heterogeneity among banks and the common…
We show that the emergence of systemic risk in complex systems can be understood from the evolution of functional networks representing interactions inferred from fluctuation correlations between macroscopic observables. Specifically, we…
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…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
Experiments on decision making under uncertainty are known to display a classical pattern of risk aversion and risk seeking referred to as "fourfold pattern" (or "reflection effect") , but recent experiments varying the speed and order of…
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a…
This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
The dynamics of protection processes has been a fundamental challenge in systemic risk analysis. The conceptual principle and methodological techniques behind the mechanisms involved [in such dynamics] have been harder to grasp than…
We design the controls of physical systems that are faced by uncertainties. The system dynamics are described by random hyperbolic balance laws. The control aims to steer the system to a desired state under uncertainties. We propose a…
Capturing uncertainty in models of complex dynamical systems is crucial to designing safe controllers. Stochastic noise causes aleatoric uncertainty, whereas imprecise knowledge of model parameters leads to epistemic uncertainty. Several…
Autonomous and learning agents increasingly participate in markets - setting prices, placing bids, ordering inventory. Such agents are not just aiming to optimize in an uncertain environment; they are making decisions in a game-theoretical…
Solving chance-constrained optimal control problems for systems subject to non-stationary uncertainties is a significant challenge.Conventional robust model predictive control (MPC) often yields excessive conservatism by relying on static…
Investigation of the critical levels and catastrophes in the complex systems of different nature is useful and perspective. Mathematical modeling and analysis is presented for revealing and investigation of the phenomena and critical levels…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
Financial markets, being spectacular examples of complex systems, display rich correlation structures among price returns of different assets. The correlation structures change drastically, akin to phase transitions in physical phenomena,…