Related papers: Optimal Clearing Payments in a Financial Contagion…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
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…
Financial networks raise a significant computational challenge in identifying insolvent firms and evaluating their exposure to systemic risk. This task, known as the clearing problem, is computationally tractable when dealing with simple…
The events of the last few years revealed an acute need for tools to systematically model and analyze large financial networks. Many applications of such tools include the forecasting of systemic failures and analyzing probable effects of…
The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…
We consider the problem of determining a sequence of payments among a set of entities that clear (if possible) the liabilities among them. We formulate this as an optimal control problem, which is convex when the objective function is, and…
We propose a generic system model for a special category of interdependent networks, demand-supply networks, in which the demand and the supply nodes are associated with heterogeneous loads and resources, respectively. Our model sheds a…
This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the…
This paper provides a framework for modeling financial contagion in a network subject to fire sales and price impacts, but allowing for firms to borrow to cover their shortfall as well. We consider both uncollateralized and collateralized…
This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets (e.g., currencies). In so doing, we develop a multi-layered financial network that extends the single network…
One of the most defining features of the global financial network is its inherent complex and intertwined structure. From the perspective of systemic risk it is important to understand the influence of this network structure on default…
The 2008 financial crisis has been attributed to "excessive complexity" of the financial system due to financial innovation. We employ computational complexity theory to make this notion precise. Specifically, we consider the problem of…
We study the problem of designing dynamic intervention policies for minimizing networked defaults in financial networks. Formally, we consider a dynamic version of the celebrated Eisenberg-Noe model of financial network liabilities and use…
The problem of market clearing is to set a price for an item such that quantity demanded equals quantity supplied. In this work, we cast the problem of predicting clearing prices into a learning framework and use the resulting models to…
We develop a model for contagion in reinsurance networks by which primary insurers' losses are spread through the network. Our model handles general reinsurance contracts, such as typical excess of loss contracts. We show that simpler…
We study computational problems in financial networks of banks connected by debt contracts and credit default swaps (CDSs). A main problem is to determine \emph{clearing} payments, for instance right after some banks have been exposed to a…
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…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
We consider a general tractable model for default contagion and systemic risk in a heterogeneous financial network, subject to an exogenous macroeconomic shock. We show that, under some regularity assumptions, the default cascade model…