Systemic risk in financial networks has received attention from academics since the 2007-2009 financial crisis. We analyze a financial network from the perspective of a regulator who aims to minimize the fraction of defaults under a budget constraint. Unlike the majority of literature in this field, the connections between financial institutions (hereafter, banks) are assumed unknown in the beginning, but are revealed as the contagion process unfolds. We focus on the case in which the number of initial defaults is small relative to the total number of banks. We analyze the optimal intervention policy first for a regular network consisting of “vulnerable banks”. We then discuss the optimal intervention problem in a more general network setting.
- Start date: 2016-04-26 11:00:00
- End date: 2016-04-26 12:30:00
- Venue: 639 Evans Hall at UC Berkeley
- Address: 639 Evans Hall, Berkeley, CA, 94720