Related papers: An assets-liabilities dynamical model of banking s…
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic…
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…
The concept of resilience embodies the quest towards the ability to sustain shocks, to suffer from these shocks as little as possible, for the shortest time possible, and to recover with the full functionalities that existed before the…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
Monitoring means to observe a system for any changes which may occur over time, using a monitor or measuring device of some sort. In this paper we formulate a problem of monitoring dates of maximal risk of a financial position. Thus, the…
A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of…
Generative and agentic artificial intelligence is entering financial markets faster than existing governance can adapt. Current model-risk frameworks assume static, well-specified algorithms and one-time validations; large language models…
In this paper we study the distributional properties of a vector of lifetimes in which each lifetime is modeled as the first arrival time between an idiosyncratic shock and a common systemic shock. Despite unlike the classical…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
We prove a general existence result in stochastic optimal control in discrete time where controls take values in conditional metric spaces, and depend on the current state and the information of past decisions through the evolution of a…
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…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
Resilience is a rehashed concept in natural hazard management - resilience of cities to earthquakes, to floods, to fire, etc. In a word, a system is said to be resilient if there exists a strategy that can drive the system state back to…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Stochastic models such as Continuous-Time Markov Chains (CTMC) and Stochastic Hybrid Automata (SHA) are powerful formalisms to model and to reason about the dynamics of biological systems, due to their ability to capture the stochasticity…
Time-consistency is an essential requirement in risk sensitive optimal control problems to make rational decisions. An optimization problem is time consistent if its solution policy does not depend on the time sequence of solving the…
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 2023 U.S. banking crisis propagated not through direct financial linkages but through a high-frequency, information-based contagion channel. This paper moves beyond exploration analysis to test the "too-similar-to-fail" hypothesis,…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
For controlled discrete-time stochastic processes we introduce a new class of dynamic risk measures, which we call process-based. Their main features are that they measure risk of processes that are functions of the history of a base…