Related papers: Default Ambiguity: Finding the Best Solution to th…
Efficient computability is an important property of solution concepts in matching markets. We consider the computational complexity of finding and verifying various solution concepts in trading networks-multi-sided matching markets with…
In portfolio compression, market participants (banks, organizations, companies, financial agents) sign contracts, creating liabilities between each other, which increases the systemic risk. Large, dense markets commonly can be compressed by…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
It is not, in general, possible to have access to all variables that determine the behavior of a system. Having identified a number of variables whose values can be accessed, there may still be hidden variables which influence the dynamics…
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…
An unconventional approach for optimal stopping under model ambiguity is introduced. Besides ambiguity itself, we take into account how ambiguity-averse an agent is. This inclusion of ambiguity attitude, via an $\alpha$-maxmin nonlinear…
Cascading failures, such as bankruptcies and defaults, pose a serious threat for the resilience of the global financial system. Indeed, because of the complex investment and cross-holding relations within the system, failures can occur as a…
In the last years, increasing efforts have been put into the development of effective stress tests to quantify the resilience of financial institutions. Here we propose a stress test methodology for central counterparties based on a network…
The network-based study of financial systems has received considerable attention in recent years but has seldom explicitly incorporated the dynamic aspects of such systems. We consider this problem setting from the temporal point of view…
Modern financial networks are highly connected and result in complex interdependencies of the involved institutions. In the prominent Eisenberg-Noe model, a fundamental aspect is clearing -- to determine the amount of assets available to…
A central problem in business concerns the optimal allocation of limited resources to a set of available tasks, where the payoff of these tasks is inherently uncertain. In credit card fraud detection, for instance, a bank can only assign a…
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…
Any solvency regime for financial institutions should be aligned with the fundamental objectives of regulation: protecting liability holders and securing the stability of the financial system. The first objective leads to consider…
We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…
Contemporary deep learning based solution methods used to compute approximate equilibria of high-dimensional dynamic stochastic economic models are often faced with two pain points. The first problem is that the loss function typically…
Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…
The authors examine the concept of probability of default for asset-backed loans. In contrast to unsecured loans it is shown that probability of default can be defined as either a measure of the likelihood of the borrower failing to make…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
The multiple extension problem arises frequently in diagnostic and default inference. That is, we can often use any of a number of sets of defaults or possible hypotheses to explain observations or make Predictions. In default inference,…