Related papers: Optimal Bailouts in Diversified Financial Networks
The 2008 financial crisis has been attributed to "excessive complexity" of the financial system due to financial innovation. We employ computational complexity theory to make this notion precise. Specifically, we consider the problem of…
We study an optimal investment problem with multiple entries and forced exits. A closed form solution of the optimisation problem is presented for general underlying diffusion dynamics and a general running payoff function in the case when…
This paper proposes and studies an optimal dividend problem in which a two-state regime-switching environment affects the dynamics of the company's cash surplus and, as a novel feature, also the bankruptcy level. The aim is to maximize the…
This paper studies the bail-out optimal dividend problem with regime switching under the constraint that the cumulative dividend strategy is absolutely continuous. We confirm the optimality of the regime-modulated refraction-reflection…
This paper studies the optimal dividend for a multi-line insurance group, in which each subsidiary runs a product line and is exposed to some external credit risk. The default contagion is considered such that one default event may increase…
In economic settings such as learning, social behavior, and financial contagion, agents interact through interdependent networks. This paper examines how a decision maker (DM) can design an optimal intervention strategy under network…
Networked public goods games model scenarios in which self-interested agents decide whether or how much to invest in an action that benefits not only themselves, but also their network neighbors. Examples include vaccination, security…
We consider a large random network, in which the performance of a node depends upon that of its neighbours and some external random influence factors. This results in random vector valued fixed-point (FP) equations in large dimensional…
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic…
The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…
This paper investigates dividend optimization of an insurance corporation under a more realistic model which takes into consideration refinancing or capital injections. The model follows the compound Poisson framework with credit interest…
Networked-guarantee loans may cause the systemic risk related concern of the government and banks in China. The prediction of default of enterprise loans is a typical extremely imbalanced prediction problem, and the networked-guarantee make…
Evaluation of systemic risk in networks of financial institutions in general requires information of inter-institution financial exposures. In the framework of Debt Rank algorithm, we introduce an approximate method of systemic risk…
The recent banking crisis has again emphasized the importance of understanding and mitigating systemic risk in financial networks. In this paper, we study a market-driven approach to rescue a bank in distress based on the idea of claims…
Receivable financing is the process whereby cash is advanced to firms against receivables their customers have yet to pay: a receivable can be sold to a funder, which immediately gives the firm cash in return for a small percentage of the…
I develop a dynamic model of how internal capital markets in conglomerates respond to liquidity shocks when affiliated firms vary in innovation potential. A two-stage framework defines cutoff rules for when the conglomerate should liquidate…
We consider discrete-time dynamics, for cascading failure in DC networks, whose map is composition of failure rule with control actions. Supply-demand at the nodes is monotonically non-increasing under admissible control. Under the failure…
We consider a financial market with a stock exposed to a counterparty risk inducing a drop in the price, and which can still be traded after this default time. We use a default-density modeling approach, and address in this incomplete…
Propagation of balance-sheet or cash-flow insolvency across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in…