Related papers: Optimal Bailouts in Diversified Financial Networks
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein--Uhlenbeck and…
Cascading failures represent a fundamental threat to the integrity of complex systems, often precipitating a comprehensive collapse across diverse infrastructures and financial networks. This research articulates a robust and pragmatic…
We consider an insurance company which faces financial risk in the form of insurance claims and market-dependent surplus fluctuations. The company aims to simultaneously control its terminal wealth (e.g. at the end of an accounting period)…
We study the problem of asset liquidation in financial systems. During financial crises, asset liquidation is often inevitable but can lead to substantial losses if a significant amount of illiquid assets are sold simultaneously at…
In portfolio compression, market participants (banks, organizations, companies, financial agents) sign contracts, creating liabilities between each other, which increases the systemic risk. Large, dense markets commonly can be compressed by…
We study optimal investment in an asset subject to risk of default for investors that rely on different levels of information. The price dynamics can include noises both from a Wiener process and a Poisson random measure with infinite…
What is the best macroprudential regulation when households differ in their exposure to profits from the financial sector? To answer the question, I study a real business cycle model with household heterogeneity and market incompleteness.…
We undertake a fundamental study of network equilibria modeled as solutions of fixed point equations for monotone linear functions with saturation nonlinearities. The considered model extends one originally proposed to study systemic risk…
A central issue in complex networks is tolerance to random failures and intentional attacks. Current literature emphasizes the dichotomy between networks with a power-law node connectivity distribution, which are robust to random failures…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
An important problem in networked systems is detection and removal of suspected malicious nodes. A crucial consideration in such settings is the uncertainty endemic in detection, coupled with considerations of network connectivity, which…
Dual risk models are popular for modeling a venture capital or high tech company, for which the running cost is deterministic and the profits arrive stochastically over time. Most of the existing literature on dual risk models concentrated…
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…
Operation of critical infrastructures are highly interdependent on each other. Such dependencies causes failure in these infrastructures to cascade on an initial failure event. Owing to this vulnerability it is imperative to incorporate…
We consider a bilevel attacker-defender problem to find the worst-case attack on the relays that control the transmission grid. The attacker maximizes load shed by infiltrating a number of relays and rendering the components connected to…
We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the…