Selected Publications
- The backward stochastic dynamics on a filtered probability space, (with Terry Lyons and Zhongmin Qian), Annals of Probability, Vol.39, No.4, (2011), 1422-1448.
- A multi-period bank run model for liquidity risk, (with Eva Lutkebohmert and Yajun Xiao), Review of Finance, Vol.18, No.2, (2014), 803-842.
- Pseudo linear pricing rule for utility indifference valuation, (with Vicky Henderson), Finance and Stochastics, Vol.18, No.3, (2014), 593-615.
- Stochastic control representations for penalized backward stochastic differential equations, SIAM Journal on Control and Optimization, Vol.53, No.3, (2015), 1440-1463.
- Representation of homothetic forward performance processes in stochastic factor models via ergodic and infinite horizon BSDE, (with Thaleia Zariphopoulou), SIAM Journal on Financial Mathematics, Vol.8, No.1, (2017), 344-372.
FRIAS Project
A Mean-field Game Approach to Rollover Risk and Systemic Risk
The proposed research project aims at studying (1) the impact of liquidity and insolvency risks on individual financial institutions and the whole financial system; (2) the impact of the implementation and adjustment of macroprudential instruments on the financial sector, and their efficiency in reducing the overall systemic risk.
In a network of financial institutions we will investigate two contagion mechanisms and their interactions. First, default contagion emerges from a shortfall in asset value of a single institution, which can trigger losses on interbank assets of other institutions and, thus, can be destabilizing for the whole system. Second, liquidity contagion stems from funding problems initially affecting only a single institution. These yield a reduction of interbank loans which can in turn trigger funding problems of other institutions and ultimately can cause a systemic crisis.
We propose a mean-field game approach to study the interactions between different financial institutions, which will allow us to investigate how the above two contagion effects depend on institutions’ balance sheet structure and which macroprudential instruments can help to prevent a crisis to spread.