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We show in a simulation when economic agents are subject to evolution (random change and selection based on the success in the estimation of the result of the gamble) they acquire risk aversive behavior. This behavior appears in the form of…
A theoretical model of systemic-risk propagation of financial market is analyzed for stability. The state equation is an unsteady diffusion equation with a nonlinear logistic growth term, where the diffusion process captures the spread of…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
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…
Due to delays in the adaptation of production or delivery rates, supply chains can be dynamically unstable with respect to perturbations in the consumption rate, which is known as "bull-whip effect". Here, we study several conceivable…
We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g.,…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
We analyze the stability properties of equilibrium solutions and periodicity of orbits in a two-dimensional dynamical system whose orbits mimic the evolution of the price of an asset and the excess demand for that asset. The construction of…
Financial markets change their behaviours abruptly. The mean, variance and correlation patterns of stocks can vary dramatically, triggered by fundamental changes in macroeconomic variables, policies or regulations. A trader needs to adapt…
This paper studies a risk-sensitive decision-making problem under uncertainty. It considers a decision-making process that unfolds over a fixed number of stages, in which a decision-maker chooses among multiple alternatives, some of which…
Supply chain disruptions constitute an often underestimated risk for financial stability. As in financial networks, systemic risks in production networks arises when the local failure of one firm impacts the production of others and might…
This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks.…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
Identifying systemic risk patterns in geopolitical, economic, financial, environmental, transportation, epidemiological systems and their impacts is the key to risk management. This paper proposes a new nonlinear time series model:…
In this paper we present a framework for risk-sensitive model predictive control (MPC) of linear systems affected by stochastic multiplicative uncertainty. Our key innovation is to consider a time-consistent, dynamic risk evaluation of the…
This paper introduces a novel approach to quantifying ecological resilience in biological systems, particularly focusing on noisy systems responding to episodic disturbances with sudden adaptations. Incorporating concepts from…
In setting up a stochastic description of the time evolution of a financial index, the challenge consists in devising a model compatible with all stylized facts emerging from the analysis of financial time series and providing a reliable…
We present a network-based framework for simulating systemic risk that considers shock propagation in banking systems. In particular, the framework allows the modeller to reflect a top-down framework where a shock to one bank in the system…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…