Related papers: Optimal Bailouts in Diversified Financial Networks
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…
I study the optimal regulation of a financial sector where individual banks face self-enforcing constraints countering their default incentives. The constrained-efficient social planner can improve over the unregulated equilibrium in two…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
Payment channel networks (PCNs) are a layer-2 blockchain scalability solution, with its main entity, the payment channel, enabling transactions between pairs of nodes "off-chain," thus reducing the burden on the layer-1 network. Nodes with…
We study a practical optimization problems for venture capital investments and/or Research and Development (R&D) investments. The first problem is that, given the amount of the initial investment and the reward function at the initial…
This paper considers an insurer with two collaborating business lines that must make three critical decisions: (1) dividend payout, (2) a combination of proportional and excess-of-loss reinsurance coverage, and (3) capital injection between…
This paper considers nonlinear regular-singular stochastic optimal control of large insurance company. The company controls the reinsurance rate and dividend payout process to maximize the expected present value of the dividend pay-outs…
Financial networks are characterized by complex structures of mutual obligations. These obligations are fulfilled entirely or in part (when defaults occur) via a mechanism called clearing, which determines a set of payments that settle the…
This paper considers an insurer with two collaborating business lines, and the risk exposure of each line follows a diffusion risk model. The manager of the insurer makes three decisions for each line: (i) dividend payout, (ii)…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Using a multivariate normal Copula function for the joint default…
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…
In this paper, we study the optimal control problem for a company whose surplus process evolves as an upward jump diffusion with random return on investment. Three types of practical optimization problems faced by a company that can control…
We study financial networks where banks are connected through bilateral liabilities and may default when resources are insufficient to meet obligations. We consider both the standard proportional clearing model and a priority-proportional…
This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under…
This paper investigates two mechanisms of financial contagion that are, firstly, the correlated exposure of banks to the same source of risk, and secondly the direct exposure of banks in the interbank market. It will consider a random…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
This paper studies the optimal dividend problem with capital injection under the constraint that the cumulative dividend strategy is absolutely continuous. We consider an open problem of the general spectrally negative case and derive the…
This paper studies the bailout optimal dividend problem with regime switching under the constraint that dividend payments can be made only at the arrival times of an independent Poisson process while capital can be injected continuously in…
We study the optimal financing and dividend distribution problem with restricted dividend rates in a diffusion type surplus model where the drift and volatility coefficients are general functions of the level of surplus and the external…