Related papers: Relating debt and currency crises -- towards a gen…

This paper investigates whether a financial system can be made more stable if financial institutions share risk by exchanging contingent convertible (CoCo) debt obligations. The question is framed in a financial network model of debt and…

We propose a simple model of the banking system incorporating a game feature where the evolution of monetary reserve is modeled as a system of coupled Feller diffusions. The Markov Nash equilibrium generated through minimizing the linear…

General equilibrium, the cornerstone of modern economics and finance, rests on assumptions many markets do not meet. Spectrum auctions, electricity markets, and cap-and-trade programs for resource rights often feature non-convexities in…

We propose a Markov chain model for credit rating changes. We do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process. The parameters of the model are estimated…

We develop a model where currency issuers provide liquidity, while users in a trade network choose currency usage for trade settlement. We identify a feedback mechanism where a user's currency preference spillovers to others and increases…

We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…

We consider a government that aims at reducing the debt-to-gross domestic product (GDP) ratio of a country. The government observes the level of the debt-to-GDP ratio and an indicator of the state of the economy, but does not directly…

Possible solution of problem of sovereign debts is suggested. At the current moment this solution still can be provided only by methods of the world monetary policy.

In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…

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.…

I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…

Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics is offering models of markets as complex systems, such as the gas-like model, able to predict money distributions…

We consider the problem of constructing an appropriate multivariate model for the study of the counterparty credit risk in credit rating migration problem. For this financial problem different multivariate Markov chain models were proposed.…

We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…

A generalized fluctuation-response relation is found for thermal systems driven out of equilibrium. Its derivation is independent of many details of the dynamics, which is only required to be first-order. The result gives a correction to…

In [1] we presented a model for transactions when goods are given away in the expectation of a later settlement. In settings where people keep track of their social accounts we were able to redefine concepts like account balance, yield…

This paper examines the sign-dependent international spillovers of Federal Reserve and European Central Bank monetary policy shocks. Using a consistent high-frequency identification of pure monetary policy shocks across 44 advanced and…

We consider Markov-switching regression models, i.e. models for time series regression analyses where the functional relationship between covariates and response is subject to regime switching controlled by an unobservable Markov chain.…

This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime…

For the iterated Prisoner's Dilemma, there exist Markov strategies which solve the problem when we restrict attention to the long term average payoff. When used by both players these assure the cooperative payoff for each of them. Neither…