Related papers: Dynamic loan portfolio management in a three time …
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…
We introduce the class of multistage stochastic optimization problems with a random number of stages. For such problems, we show how to write dynamic programming equations and detail the Stochastic Dual Dynamic Programming algorithm to…
We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired…
The paper models foreign capital inflow from the developed to the developing countries in a stochastic dynamic programming (SDP) framework. Under some regularity conditions, the existence of the solutions to the SDP problem is proved and…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
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.…
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.…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…
For a long investment time horizon, it is preferable to rebalance the portfolio weights at intermediate times. This necessitates a multi-period market model in which portfolio optimization is usually done through dynamic programming.…
This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sensitivities. We find, from a well analyzed…
Portfolio management problems are often divided into two types: active and passive, where the objective is to outperform and track a preselected benchmark, respectively. Here, we formulate and solve a dynamic asset allocation problem that…
This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…
In this paper, we present a simple microeconomic model with linear continuous-time dynamics that describes a production-inventory system with debt repayment. This model is formulated in terms of optimal control and its exact solutions are…
Attitudes toward risk underlie virtually every important economic decision an individual makes. In this experimental study, I examine how introducing a time delay into the execution of an investment plan influences individuals' risk…
We describe the bailout of banks by governments as a Markov Decision Process (MDP) where the actions are equity investments. The underlying dynamics is derived from the network of financial institutions linked by mutual exposures, and the…
A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both…
In a previous paper, we applied a field formalism to analyze capital allocation and accumulation within a microeconomic framework of investors and firms. The financial connections were modeled by a field of stakes, representing the links…
Managing the transactions in real time distributed computing system is not easy, as it has heterogeneously networked computers to solve a single problem. If a transaction runs across some different sites, it may commit at some sites and may…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…