Related papers: Credit Limits beyond Full Collateralization in Dec…
Borrowing constraints are a key component of modern international macroeconomic models. The analysis of Emerging Markets (EM) economies generally assumes collateral borrowing constraints, i.e., firms access to debt is constrained by the…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
This paper introduces constrained correlated equilibrium, a solution concept combining correlation and coupled constraints in finite non-cooperative games. In the general case of an arbitrary correlation device and coupled constraints in…
This paper asks whether regulatory monitoring exhibits nonlinear capacity limits as the scale and complexity of the regulated environment increase. Using a county--year panel of U.S. Food and Drug Administration (FDA) inspections merged…
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…
Asset custody is a core financial service in which the custodian holds in-safekeeping assets on behalf of the client. Although traditional custody service is typically endorsed by centralized authorities, decentralized custody scheme has…
We argue that recent developments in proof-of-work consensus mechanisms can be used in accordance with advancements in formal verification techniques to build a distributed payment protocol that addresses important economic drawbacks from…
Collateral is an item of value serving as security for the repayment of a loan. In blockchain-based loans, cryptocurrencies serve as the collateral. The high volatility of cryptocurrencies implies a serious barrier of entry with a common…
Many transfer problems require re-using previously optimal decisions for solving new tasks, which suggests the need for learning algorithms that can modify the mechanisms for choosing certain actions independently of those for choosing…
Decentralized Finance (DeFi) has reshaped the possibilities of reserve banking in the form of the Collateralized Debt Position (CDP). Key to the safety of CDPs is the money supply architecture that enables issued debt to maintain its value.…
Financial speculators often seek to increase their potential gains with leverage. Debt is a popular form of leverage, and with over 39.88B USD of total value locked (TVL), the Decentralized Finance (DeFi) lending markets are thriving.…
Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the…
Permissionless blockchains offer many advantages but also have significant limitations including high latency. This prevents their use in important scenarios such as retail payments, where merchants should approve payments fast. Prior works…
We study decentralized cryptocurrency protocols in which the participants do not deplete physical scarce resources. Such protocols commonly rely on Proof of Stake, i.e., on mechanisms that extend voting power to the stakeholders of the…
Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the…
This paper analyses the impact of credit expansions arising from decreases in collateral requirements or more expansionary monetary policies on long-term productivity in a model with endogenous growth. Credit expansions associated with…
Decentralized storage is one of the most natural applications built on blockchains and a central component of the Web3 ecosystem. Yet despite a decade of active development -- from IPFS and Filecoin to more recent entrants -- most of these…
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…
Fair division is typically framed from a centralized perspective. However, in practice resource allocation often occurs via decentralized networks. We study a decentralized variant of fair division inspired by altruistic dynamics observed…
The `Black Thursday' crisis in cryptocurrency markets demonstrated deleveraging risks in over-collateralized non-custodial stablecoins. We develop a stochastic model that helps explain deleveraging crises in these over-collateralized…