Related papers: An assets-liabilities dynamical model of banking s…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
In this paper, we analyze dynamic programming as a novel approach to solve the problem of maximizing the profits of a bank. The mathematical model of the problem and the description of a bank's work is described in this paper. The problem…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
Systemic risk is a rapidly developing area of research. Classical financial models often do not adequately reflect the phenomena of bubbles, crises, and transitions between them during credit cycles. To study very improbable events,…
Agentic AI systems are increasingly being explored as production infrastructure: they reason over multiple steps, call tools, act through workflows, and adapt through memory and feedback. These systems create governance challenges that are…
This paper describes a general approach for stochastic modeling of assets returns and liability cash-flows of a typical pensions insurer. On the asset side, we model the investment returns on equities and various classes of fixed-income…
We study time-consistency questions for processes of monetary risk measures that depend on bounded discrete-time processes describing the evolution of financial values. The time horizon can be finite or infinite. We call a process of…
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…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further…
We consider a dynamic model of interconnected banks. New banks can emerge, and existing banks can default, creating a birth-and-death setup. Microscopically, banks evolve as independent geometric Brownian motions. Systemic effects are…
In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system. Failures can take the form of bankruptcies, defaults, and other insolvencies. The network that…
Eisenberg and Noe (2001) analyze systemic risk for financial institutions linked by a network of liabilities. They show that the solution to their model is unique when the financial system is satisfies a regularity condition involving risk…
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
A novel dynamical model for the study of operational risk in banks and suitable for the calculation of the Value at Risk (VaR) is proposed. The equation of motion takes into account the interactions among different bank's processes, the…
We develop a generalized stability framework for stochastic discrete-time systems, where the generality pertains to the ways in which the distribution of the state energy can be characterized. We use tools from finance and operations…
In this paper, we consider the asset-liability management under the mean-variance criterion. The financial market consists of a risk-free bond and a stock whose price process is modeled by a geometric Brownian motion. The liability of the…
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 this paper, we formulate a general time-inconsistent stochastic linear--quadratic (LQ) control problem. The time-inconsistency arises from the presence of a quadratic term of the expected state as well as a state-dependent term in the…
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…