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Risk assessment algorithms are being adopted by public sector agencies to make high-stakes decisions about human lives. Algorithms model "risk" based on individual client characteristics to identify clients most in need. However, this…
We present a new approach to understanding credit relationships between commercial banks and quoted firms, and with this approach, examine the temporal change in the structure of the Japanese credit network from 1980 to 2005. At each year,…
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…
Advancements in large language models (LLMs) have renewed concerns about AI alignment - the consistency between human and AI goals and values. As various jurisdictions enact legislation on AI safety, the concept of alignment must be defined…
We estimate generic statistical properties of a structural credit risk model by considering an ensemble of correlation matrices. This ensemble is set up by Random Matrix Theory. We demonstrate analytically that the presence of correlations…
This paper introduces new valuation schemes called actuarial-consistent valuations for insurance liabilities which depend on both financial and actuarial risks, which imposes that all actuarial risks are priced via standard actuarial…
We consider a model of financial contagion in a bipartite network of assets and banks recently introduced in the literature, and we study the effect of power law distributions of degree and balance-sheet size on the stability of the system.…
Oversight and control, which we collectively call supervision, are often discussed as ways to ensure that AI systems are accountable, reliable, and able to fulfill governance and management requirements. However, the requirements for "human…
We briefly review the well-known risks, weaknesses and limitations of spreadsheets and then introduce some more. We review and slightly extend our previous work on the importance and criticality of spreadsheets in the City of London,…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
Aggregate and systemic risk in complex systems are emergent phenomena depending on two properties: the idiosyncratic risks of the elements and the topology of the network of interactions among them. While a significant attention has been…
This paper reviews current literature in the field of predictive maintenance from the system point of view. We differentiate the existing capabilities of condition estimation and failure risk forecasting as currently applied to simple…
Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two parameters and…
Credit scoring is an increasingly central and contested domain of data and AI governance, frequently framed as a neutral and objective method of assessing risk across diverse economic and political contexts. Based on a nine-month…
Drawing on recent contributions inferring financial interconnectedness from market data, our paper provides new insights on the evolution of the US financial industry over a long period of time by using several tools coming from network…
In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network…
Following several episodes of financial market turmoil in recent decades, changes in systemic risk have drawn growing attention. Therefore, we propose surveillance schemes for systemic risk, which allow to detect misspecified systemic risk…
We consider the problem of governing systemic risk in a banking system model. The banking system model consists in an initial value problem for a system of stochastic differential equations whose dependent variables are the log-monetary…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations.…