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Analysis of the 2007-8 credit crisis has concentrated on issues of relaxed lending standards, and the perception of irrational behaviour by speculative investors in real estate and other assets. Asset backed securities have been extensively…
A system for Operational Risk management based on the computational paradigm of Bayesian Networks is presented. The algorithm allows the construction of a Bayesian Network targeted for each bank using only internal loss data, and takes into…
Motivated by the recent interest in risk-aware control, we study a continuous-time control synthesis problem to bound the risk that a stochastic linear system violates a given specification. We use risk signal temporal logic as a…
Significant digitalization of financial services in a short period of time has led to an urgent demand to have autonomous, transparent and real-time credit risk decision making systems. The traditional machine learning models are effective…
Dynamical systems with components whose sizes evolve according to multiplicative stochastic rules have been recently combined with entry and exit processes. We show that the assumptions usually made in modeling exits are at odds with the…
Measuring the contribution of a bank or an insurance company to overall systemic risk is a key concern, particularly in the aftermath of the 2007--2009 financial crisis and the 2020 downturn. In this paper, we derive worst-case and…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Systemic risk measures aggregate the risks from multiple financial institutions to find system-wide capital requirements. Though much attention has been given to assessing the level of systemic risk, less has been given to allocating that…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…
Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss…
We introduce a non-zero-sum game between a government and a legislative body to study the optimal level of debt. Each player, with different time preferences, can intervene on the stochastic dynamics of the debt-to-GDP ratio via singular…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
This paper develops a new model of business cycles. The model is economical in that it is solved with an aggregate demand-aggregate supply diagram, and the effects of shocks and policies are obtained by comparative statics. The model builds…
In this paper, we consider a risk-averse decision problem for controlled-diffusion processes, with dynamic risk measures, in which there are two risk-averse decision makers (i.e., {\it leader} and {\it follower}) with different risk-averse…
Research has shown banks match interest income and expense betas, and thereby obtain net interest income margins which are insensitive to changes in short-term interest rates. The present analysis extends this research in a number of ways.…
The paper studies a system of Hamilton-Jacobi equations, arising from a stochastic optimal debt management problem in an infinite time horizon with exponential discount, modeled as a noncooperative interaction between a borrower and a pool…
In order to properly manage risk, practitioners must understand the aggregate risks they are exposed to. Additionally, to properly price policies and calculate bonuses the relative riskiness of individual business units must be well…
In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…