Related papers: Financial fire sales as continuous-state complex c…
By treating the financial market as a thermodynamic system, we establish a one-to-one correspondence between thermodynamic variables and economic quantities. Measured by the expected loss under the worst-case scenario, financial risk caused…
In this paper, I consider a simple heterogeneous agents model of a production economy with uncertain climate change and examine constrained efficient carbon taxation. If there are frictionless, complete financial markets, the simple model…
Do vulnerabilities in Decentralized Finance (DeFi) destabilize traditional short-term funding markets? While the prevailing ``Contagion Hypothesis'' posits that stablecoin reserve liquidations may transmit distress to traditional markets…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
A complex contagion is an infectious process in which individuals may require multiple transmissions before changing state. These are used to model behaviors if an individual only adopts a particular behavior after perceiving a consensus…
Trust lies at the crux of most economic transactions, with credit markets being a notable example. Drawing on insights from the literature on coordination games and network growth, we develop a simple model to clarify how trust breaks down…
We present a simple continuous-time model of clearing in financial networks. Financial firms are represented as "tanks" filled with fluid (money), flowing in and out. Once "pipes" connecting "tanks" are open, the system reaches the clearing…
We address the joint detection-and-attribution problem in cross-border financial contagion through a two-stage framework. The first stage applies wavelet-quantile transfer entropy across time-scales and lower, median, and upper-tail…
In this paper, we investigate the effect of the U.S.--China trade war on stock markets from a financial contagion perspective, based on high-frequency financial data. Specifically, to account for risk contagion between the U.S. and China…
Various works have already showed that common shocks and cross-country financial linkages caused the banking systems of several countries to be highly interconnected with the result that during bad times, banking crises may arise…
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,…
In a series of precedent papers, we have presented a comprehensive methodology, termed Field Economics, for translating a standard economic model into a statistical field-formalism framework. This formalism requires a large number of…
This paper investigates the finite horizon risk-sensitive portfolio optimization in a regime-switching credit market with physical and information-induced default contagion. It is assumed that the underlying regime-switching process has…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
In this work, cascading transmission line failures are studied through a dynamical model of the power system operating under fixed conditions. The power grid is modeled as a stochastic dynamical system where first-principles…
The continuous time model of dynamic asset trading is the central model of modern finance. Because trading cannot in fact take place at every moment of time, it would seem desirable to show that the continuous time model can be viewed as…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current…
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…
The recent financial crisis of 2008 and the 2011 indebtedness of Greece highlight the importance of understanding the structure of the global financial network. In this paper we set out to analyze and characterize this network, as captured…