Computation of Systemic Risk Measures: A Mixed-Integer Programming Approach
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Publication:6196751
DOI10.1287/OPRE.2021.0040arXiv1903.08367OpenAlexW4386958364MaRDI QIDQ6196751FDOQ6196751
Author name not available (Why is that?), Çağın Ararat
Publication date: 15 March 2024
Published in: Operations Research (Search for Journal in Brave)
Abstract: Systemic risk is concerned with the instability of a financial system whose members are interdependent in the sense that the failure of a few institutions may trigger a chain of defaults throughout the system. Recently, several systemic risk measures have been proposed in the literature that are used to determine capital requirements for the members subject to joint risk considerations. We address the problem of computing systemic risk measures for systems with sophisticated clearing mechanisms. In particular, we consider an extension of Rogers-Veraart network model where the operating cash flows are unrestricted in sign. We propose a mixed-integer programming problem that can be used to compute clearing vectors in this model. Due to the binary variables in this problem, the corresponding (set-valued) systemic risk measure fails to have convex values in general. We associate nonconvex vector optimization problems to the systemic risk measure and provide theoretical results related to the weighted-sum and Pascoletti-Serafini scalarizations of this problem. Finally, we test the proposed formulations on computational examples and perform sensitivity analyses with respect to some model-specific and structural parameters.
Full work available at URL: https://arxiv.org/abs/1903.08367
mixed integer programmingvector optimizationsystemic risk measureset-valued risk measureEisenberg-Noe modelRogers-Veraart model
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