Related papers: Optimal macroprudential policy with preemptive bai…
What should regulators of complex algorithms regulate? We propose a model of oversight over 'black-box' algorithms used in high-stakes applications such as lending, medical testing, or hiring. In our model, a regulator is limited in how…
A deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate…
In this paper, we consider three problems related to survival, growth, and goal reaching maximization of an investment portfolio with proportional net cash flow. We solve the problems in a market constrained due to borrowing prohibition. To…
In this paper, we consider solving discounted Markov Decision Processes (MDPs) under the constraint that the resulting policy is stabilizing. In practice MDPs are solved based on some form of policy approximation. We will leverage recent…
We study procurement design when the buyer is uncertain about both the value of the good and the seller's cost. The buyer has a conjectured model but does not fully trust it. She first identifies mechanisms that maximize her worst-case…
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability.…
We tackle the issue of finding a good policy when the number of policy updates is limited. This is done by approximating the expected policy reward as a sequence of concave lower bounds which can be efficiently maximized, drastically…
This paper explores stochastic control models in the context of decarbonization within the energy market. We study three progressively complex scenarios: (1) a single firm operating with two technologies-one polluting and one clean,(2)two…
Small-to-medium size enterprises (SMEs), including many startup firms, need to manage interrelated flows of cash and inventories of goods. In this paper, we model a firm that can finance its inventory (ordered or manufactured) with loans in…
As financial institutions increasingly rely on machine learning models to automate lending decisions, concerns about algorithmic fairness have risen. This paper explores the tradeoff between enforcing fairness constraints (such as…
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…
Constrained decision-making is essential for designing safe policies in real-world control systems, yet simulated environments often fail to capture real-world adversities. We consider the problem of learning a policy that will maximize the…
This paper investigates two mechanisms of financial contagion that are, firstly, the correlated exposure of banks to the same source of risk, and secondly the direct exposure of banks in the interbank market. It will consider a random…
We propose a minimal model of the secured interbank network able to shed light on recent money markets puzzles. We find that excess liquidity emerges due to the interactions between the reserves and liquidity ratio constraints; the…
Major events like natural catastrophes or the COVID-19 crisis have impact both on the financial market and on claim arrival intensities and claim sizes of insurers. Thus, when optimal investment and reinsurance strategies have to be…
In ergodic singular stochastic control problems, a decision-maker can instantaneously adjust the evolution of a state variable using a control of bounded variation, with the goal of minimizing a long-term average cost functional. The cost…
Control theory can play a pivotal role in tackling many of the global challenges currently affecting our society, representing an actionable tool to help policymakers in shaping our future. At the same time, for this to be possible,…
In this paper, we analyze the effect of a policy recommendation on the performance of an artificial interbank market. Financial institutions stipulate lending agreements following a public recommendation and their individual information.…
This paper considers an insurance company that faces two key constraints: a ratcheting dividend constraint and an irreversible reinsurance constraint. The company allocates part of its reserve to pay dividends to its shareholders while…
We analyze how uncertain technologies should be robustly regulated and how regulation should evolve with new information. An adaptive sandbox comprising a zero marginal tax up to an evolving quantity limit is (i) robust: it delivers optimal…