Related papers: Optimal Bailouts in Diversified Financial Networks

We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…

Motivated by reliability of networks in critical infrastructures, we consider optimal robustness of a class of flow networks against a \textit{targeted} attack, namely max-load targeted attack, that triggers cascading failures due to…

Active distribution networks facilitating bidirectional power exchange with renewable energy resources are susceptible to cyberattacks due to integration of a diverse array of cyber components. This study introduces a grid-level defense…

Financial network games model payment incentives in the context of networked liabilities. In this paper, we advance the understanding of incentives in financial networks in two important directions: minimal clearing (arising, e.g., as a…

We consider a banking network represented by a system of stochastic differential equations coupled by their drift. We assume a core-periphery structure, and that the banks in the core hold a bubbly asset. The banks in the periphery have not…

We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…

Motivated by the current global high inflation scenario, we aim to discover a dynamic multi-period allocation strategy to optimally outperform a passive benchmark while adhering to a bounded leverage limit. To this end, we formulate an…

This paper presents machine learning techniques and deep reinforcement learningbased algorithms for the efficient resolution of nonlinear partial differential equations and dynamic optimization problems arising in investment decisions and…

Contemporary deep learning based solution methods used to compute approximate equilibria of high-dimensional dynamic stochastic economic models are often faced with two pain points. The first problem is that the loss function typically…

Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…

We consider optimal control of a stochastic network,where service is controlled to prevent buffer overflow. We use a risk-sensitive escape time criterion, which in comparison to the ordinary escape time criteria heavily penalizes exits…

We study the optimal bailout dividend problem with transaction costs for an insurance company, where shareholder payouts align with the arrival times of an independent Poisson process. In this scenario, the underlying risk model follows a…

In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we…

We develop a model of bailout stigma where accepting a bailout signals a firm's balance-sheet weakness and worsens its funding prospect. To avoid stigma, high-quality firms either withdraw from subsequent financing after receiving bailouts…

In this paper, we study two optimisation settings for an insurance company, under the constraint that the terminal surplus at a deterministic and finite time $T$ follows a normal distribution with a given mean and a given variance. In both…

A problem of optimal debt management is modeled as a noncooperative game between a borrower and a pool of lenders, in infinite time horizon with exponential discount. The yearly income of the borrower is governed by a stochastic process.…

Valuing corporate bonds in systemic economies is challenging due to intricate webs of inter-institutional exposures. When a bank defaults, cascading losses propagate through the network, with payments determined by a system of fixed-point…

In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…

We study the incentives that agents have to invest in costly protection against cascading failures in networked systems. Applications include vaccination, computer security and airport security. Agents are connected through a network and…

In this paper, we propose a technique for rebalancing link weights in decentralized credit networks. Credit networks are peer-to-peer trust-based networks that enable fast and inexpensive cross-currency transactions compared to traditional…