Ratio-balanced maximum flows

DOI10.1016/J.IPL.2019.06.003MaRDI QIDQ2274503zbMATH OpenOpenAlexFDO

Authors Hannaneh Akrami, K. Mehlhorn, Tommy Odland

Publication date 20 September 2019

Published in Information Processing Letters (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1902.11047

finance graph algorithms polynomial time maximum flows ratio-balanced

Applications of graph theory (05C90) Graph algorithms (graph-theoretic aspects) (05C85) Flows in graphs (05C21) Special types of economic equilibria (91B52)

Abstract: When a loan is approved for a person or company, the bank is subject to emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of emph{security}, which will be collected if the lender defaults. Accounts can be secured by several securities and a security can be used for several accounts. The goal is to fractionally assign the securities to the accounts so as to balance the risk. This situation can be modelled by a bipartite graph. We have a set

S

of securities and a set

A

of accounts. Each security has a emph{value}

v_{i}

and each account has an emph{exposure}

e_{j}

. If a security

i

can be used to secure an account

j

, we have an edge from

i

to

j

. Let

f_{i j}

be part of security

i

's value used to secure account

j

. We are searching for a maximum flow that send at most

v_{i}

units out of node

i i n S

and at most

e_{j}

units into node

j i n A

. Then

s_{j} = e_{j} - s u m_{i} f_{i j}

is the unsecured part of account

j

. We are searching for the maximum flow that minimizes

s u m_{j} s_{j}^{2} / e_{j}

.

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