Related papers: Optimal macroprudential policy with preemptive bai…
We present a model of credit card profitability, assuming that the card-holder always pays the full outstanding balance. The motivation for the model is to calculate an optimal credit limit, which requires an expression for the expected…
Our goal is to compute a policy that guarantees improved return over a baseline policy even when the available MDP model is inaccurate. The inaccurate model may be constructed, for example, by system identification techniques when the true…
We investigate the problem of best policy identification in discounted linear Markov Decision Processes in the fixed confidence setting under a generative model. We first derive an instance-specific lower bound on the expected number of…
The control of large queueing networks is a notoriously difficult problem. Recently, an interesting new policy design framework for the control problem called h-MaxWeight has been proposed: h-MaxWeight is a natural generalization of the…
This paper considers time-inconsistent problems when control and stopping strategies are required to be made simultaneously (called stopping control problems by us). We first formulate the timeinconsistent stopping control problems under…
We consider a stochastic control problem where the set of controls is not necessarily convex and the system is governed by a nonlinear backward stochastic differential equation. We establish necessary as well as sufficient conditions of…
We consider a network of bank holdings, where every holding has two subsidiaries of different types. A subsidiary can trade with another holding's subsidiary of the same type. Holdings support their subsidiaries up to a certain level when…
In order to adapt to the liberalization of the financial sphere started in the Eighties, marked in particular by the end of the framing of credit, the disappearance of the various forms of protection of the State whose profited the banks,…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
We characterize optimal policy in a multidimensional nonlinear taxation model with bunching. We develop an empirically relevant model with cognitive and manual skills, firm heterogeneity, and labor market sorting. We first derive two…
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…
The financial industry should be involved in mitigating the risk of downturns in the financial wellbeing indices around the world by implementing well-developed financial tools such as insurance instruments on the underlying wellbeing…
This article examines arbitrage investment in a mispriced asset when the mispricing follows the Ornstein-Uhlenbeck process and a credit-constrained investor maximizes a generalization of the Kelly criterion. The optimal differentiable and…
To address feasibility issues in model predictive control (MPC), most implementations relax state constraints by using slack variables and adding a penalty to the cost. We propose an alternative strategy: relaxing the initial state…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
Distributionally robust control is a well-studied framework for optimal decision making under uncertainty, with the objective of minimizing an expected cost function over control actions, assuming the most adverse probability distribution…
The model of this paper gives a convenient strategy that a bank in the federal funds market can use in order to maximize its profit in a contemporaneous reserve requirement (CRR) regime. The reserve requirements are determined by the demand…
Four radical ideas are presented. First, that the rationale for cancellation of principal can be modified in modern banking. Second, that non-cancellation of loan principal upon payment may cure an old problem of maintenance of positive…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
This paper develops a model of in-kind redistribution where consumers participate in either a private market or a government-designed program, but not both. We characterize when a social planner, seeking to maximize weighted total surplus,…