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Interbank deposits (loans and credits) are quite common in banking system all over the world. Such interbank co-operation is profitable for banks but it can also lead to collective financial failures. In this paper we introduce a new model…
This paper presents comparison results and establishes risk bounds for credit portfolios within classes of Bernoulli mixture models, assuming conditionally independent defaults that are stochastically increasing with a common risk factor.…
Accurately defining, measuring and mitigating risk is a cornerstone of financial risk management, especially in the presence of financial contagion. Traditional correlation-based risk assessment methods often struggle under volatile market…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
A new class of probabilistic models for cascading failure propagation in interconnected systems is proposed. The models take into account important characteristics of real systems that are not considered in existing generic approaches.…
A risk analyst assesses potential financial losses based on multiple sources of information. Often, the assessment does not only depend on the specification of the loss random variable but also various economic scenarios. Motivated by this…
We propose a model of fractal point process driven by the nonlinear stochastic differential equation. The model is adjusted to the empirical data of trading activity in financial markets. This reproduces the probability distribution…
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
Lattice investment projects support process model with corruption is formulated and analyzed. The model is based on the Ising lattice model of ferromagnetic but takes deal with the social phenomenon. Set of corruption agents is considered.…
Here we introduce the idea of using rational expectations, a core concept in economics and finance, as a tool to predict the optimal failure time for a wide class of weighted k-out-of-n reliability systems. We illustrate the concept by…
The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards…
We report evidence of a deep interplay between cross-correlations hierarchical properties and multifractality of New York Stock Exchange daily stock returns. The degree of multifractality displayed by different stocks is found to be…
In this paper, we apply tools from the random matrix theory (RMT) to estimates of correlations across volatility of various assets in the S&P 500. The volatility inputs are estimated by modeling price fluctuations as GARCH(1,1) process. The…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
We survey the state-of-the-art on model-based formalisms for safety and security joint analysis, where safety refers to the absence of unintended failures, and security to absence of malicious attacks. We conduct a thorough literature…
Manufacturing enterprises are facing a competitive challenge. This paper proposes the use of a value chain based approach to support the modelling and simulation of manufacturing enterprise processes. The aim is to help experts to make…
Interbank lending and borrowing occur when financial institutions seek to settle and refinance their mutual positions over time and circumstances. This interactive process involves money creation at the aggregate level. Coordination…
We analyse growth vulnerabilities in the US using quantile partial correlation regression, a selection-based machine-learning method that achieves model selection consistency under time series. We find that downside risk is primarily driven…
The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain…