Related papers: Optimal Bailouts in Diversified Financial Networks

We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a…

In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Default may occur in equilibrium as it prevents the government…

The effective use of limited resources for controlling spreading processes on networks is of prime significance in diverse contexts, ranging from the identification of "influential spreaders" for maximizing information dissemination and…

Strong resilience properties of dynamical flow networks are analyzed for distributed routing policies. The latter are characterized by the property that the way the inflow at a non-destination node gets split among its outgoing links is…

We introduce and investigate reroutable flows, a robust version of network flows in which link failures can be mitigated by rerouting the affected flow. Given a capacitated network, a path flow is reroutable if after failure of an arbitrary…

The main contribution of the paper is to employ the financial market network as a useful tool to improve the portfolio selection process, where nodes indicate securities and edges capture the dependence structure of the system. Three…

Cascading failures are a critical vulnerability of complex information or infrastructure networks. Here we investigate the properties of load-based cascading failures in real and synthetic spatially-embedded network structures, and propose…

We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the…

In this paper we solve the dividend optimization problem for a corporation or a financial institution when the managers of the corporation are facing (regulatory) implementation delays. We consider several cash reservoir models for the firm…

The current framework of network utility maximization for distributed rate allocation assumes fixed channel code rates. However, by adapting the physical layer channel coding, different rate-reliability tradeoffs can be achieved on each…

We investigate the trade-off between the robustness against random and targeted removal of nodes from a network. To this end we utilize the stochastic block model to study ensembles of infinitely large networks with arbitrary large-scale…

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…

In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct…

Stability is an important issue in order to characterize the performance of a network, and it has become a major topic of study in the last decade. Roughly speaking, a communication network system is said to be stable if the number of…

Instilling resilience in critical infrastructure (CI) such as dams or power grids is a major challenge for tomorrow's cities and communities. Resilience, here, pertains to a CI's ability to adapt or rapidly recover from disruptive events.…

Payment channel networks like Bitcoin's Lightning network are an auspicious approach for realizing high transaction throughput and almost-instant confirmations in blockchain networks. However, the ability to successfully make payments in…

A central challenge in financial economics is understanding how credit networks form under informational noise. We introduce the concept of topological capital, arguing that banks increasingly rely on topological certification, interpreting…

Rational pure bubble models feature multiple (and often a continuum of) equilibria, which makes model predictions and policy analyses non-robust. We show that when the interest rate in the fundamental equilibrium is below the economic…

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…

With the proliferation of distributed generation into distribution networks, the need to consider fault currents in the dispatch problem becomes increasingly relevant. This paper introduces a method for adding fault current constraints into…