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Transparency is an essential requirement of machine learning based decision making systems that are deployed in real world. Often, transparency of a given system is achieved by providing explanations of the behavior and predictions of the…

In mechanism design it is typical to impose incentive compatibility and then derive an optimal mechanism subject to this constraint. By replacing the incentive compatibility requirement with the goal of minimizing expected ex post regret,…

This paper introduces a formulation of the optimal network compression problem for financial systems. This general formulation is presented for different levels of network compression or rerouting allowed from the initial interbank network.…

In [1] Zawadoski introduces a banking network model in which the asset and counter-party risks are treated separately and the banks hedge their assets risks by appropriate OTC contracts. In his model, each bank has only two counter-party…

This study intends to present a representation of a pensions fund through a stochastic network with two infinite servers nodes. With this representation it is allowed to deduce an equilibrium condition of the system with basis on the…

Percolation is an emblematic model to assess the robustness of interconnected systems when some of their components are corrupted. It is usually investigated in simple scenarios, such as the removal of the system's units in random order, or…

Credit networks rely on decentralized, pairwise trust relationships (channels) to exchange money or goods. Credit networks arise naturally in many financial systems, including the recent construct of payment channel networks in blockchain…

With the development of the financial industry, credit default prediction, as an important task in financial risk management, has received increasing attention. Traditional credit default prediction methods mostly rely on machine learning…

Valuing corporate bonds in systemic economies is challenging due to intricate webs of inter-institutional exposures. When a bank defaults, cascading losses propagate through the network, with payments determined by a system of fixed-point…

We study pricing and (super)hedging for American options in an imperfect market model with default, where the imperfections are taken into account via the nonlinearity of the wealth dynamics. The payoff is given by an RCLL adapted process…

Global catastrophic risk events, such as nuclear war, pose a severe threat to the stability of international financial systems. As evidenced by even less severe scenarios like the Great Recession, an economic failure can propagate through…

This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters…

Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…

Fair resource allocation is a fundamental optimization problem with applications in operations research, networking, and economic and game theory. Research in these areas has led to the general acceptance of a class of $\alpha$-fair utility…

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…

Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…

The forecasting of the credit default risk has been an important research field for several decades. Traditionally, logistic regression has been widely recognized as a solution due to its accuracy and interpretability. As a recent trend,…

Within the framework of maximum entropy principle we show that the finite-size long-range Ising model is the adequate model for the description of homogeneous credit portfolios and the computation of credit risk when default correlations…

A networked system can fail when most of its components are unable to support flux through the nodes and edges. As studied earlier this scenario can be triggered by an external perturbation such as an intentional attack on nodes or for…

Internet finance is a new financial model that applies Internet technology to payment, capital borrowing and lending and transaction processing. In order to study the internal risks, this paper uses the Internet financial risk elements as…