Next Article in Journal
The Asymptotic Decision Scenarios of an Emerging Stock Exchange Market: Extreme Value Theory and Artificial Neural Network
Next Article in Special Issue
Memory, Risk Aversion, and Nonlife Insurance Consumption: Evidence from Emerging and Developing Markets
Previous Article in Journal
National Culture and Corporate Rating Migrations
Previous Article in Special Issue
CoRisk: Credit Risk Contagion with Correlation Network Models
Article

Modeling Financial System with Interbank Flows, Borrowing, and Investing

1
Department of Statistics and Applied Probability, University of California, Santa Barbara, CA 93106, USA
2
Department of Mathematics and Statistics, University of Nevada, Reno, NV 89557, USA
*
Author to whom correspondence should be addressed.
Risks 2018, 6(4), 131; https://doi.org/10.3390/risks6040131
Received: 6 October 2018 / Revised: 11 November 2018 / Accepted: 13 November 2018 / Published: 15 November 2018
(This article belongs to the Special Issue Systemic Risk in Finance and Insurance)
In our model, private actors with interbank cash flows similar to, but more general than that by Carmona et al. (2013) borrow from the non-banking financial sector at a certain interest rate, controlled by the central bank, and invest in risky assets. Each private actor aims to maximize its expected terminal logarithmic wealth. The central bank, in turn, aims to control the overall economy by means of an exponential utility function. We solve all stochastic optimal control problems explicitly. We are able to recreate occasions such as liquidity trap. We study distribution of the number of defaults (net worth of a private actor going below a certain threshold). View Full-Text
Keywords: systemic risk; stochastic control; principal–agent problem; stochastic game; stationary distribution; stochastic stability; Lyapunov function systemic risk; stochastic control; principal–agent problem; stochastic game; stationary distribution; stochastic stability; Lyapunov function
Show Figures

Figure 1

MDPI and ACS Style

Maheshwari, A.; Sarantsev, A. Modeling Financial System with Interbank Flows, Borrowing, and Investing. Risks 2018, 6, 131. https://doi.org/10.3390/risks6040131

AMA Style

Maheshwari A, Sarantsev A. Modeling Financial System with Interbank Flows, Borrowing, and Investing. Risks. 2018; 6(4):131. https://doi.org/10.3390/risks6040131

Chicago/Turabian Style

Maheshwari, Aditya, and Andrey Sarantsev. 2018. "Modeling Financial System with Interbank Flows, Borrowing, and Investing" Risks 6, no. 4: 131. https://doi.org/10.3390/risks6040131

Find Other Styles
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Back to TopTop