Statistical methods and applications, 32, 1695 - 1722, with R. Rastelli
We propose a statistical model for weighted temporal networks capable of measuring the level of heterogeneity in a financial system. Our model focuses on the level of diversification of financial institutions; that is, whether they are more inclined to distribute their assets equally among partners, or if they rather concentrate their commitment towards a limited number of institutions. Crucially, a Markov property is introduced to capture time dependencies and to make our measures comparable across time. We apply the model on an original dataset of Austrian interbank exposures. The temporal span encompasses the onset and development of the financial crisis in 2008 as well as the beginnings of European sovereign debt crisis in 2011. Our analysis highlights an overall increasing trend for network homogeneity, whereby core banks have a tendency to distribute their market exposures more equally across their partners.
Risks, 6(2), 54 , with R. Frey
In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out a simulation study that determines the probability of a systemic crisis in the banking network as a function of both the level of diversification, and the connectivity and structure of the financial network. In contrast to earlier studies we find that diversification at the level of individual banks may be beneficial for financial stability even if it does lead to a higher asset return correlation across banks.
Journal of Financial Stability 37:49-59, with R. Goncharenko, R. Pinto
This paper studies the effect of information disclosure on banks’ portfolio risk. We cast a simple banking system into a general equilibrium model with trading frictions. We find that the information disclosure lowers the expected risk-adjusted profits for a non-negligible fraction of banks. The magnitude of this effect depends on the structure of the banking system and, alarmingly, it is more pronounced for systemically important institutions. We connect these theoretical findings to the stress test procedure, where bank information is disclosed by the regulator. The 2011 and 2014 stress tests are used in an empirical study to further support our theoretical results.
Automatica, 49(6), 1776-1781, with M. Kvasnica, M. Fikar, I. Rauova
The problem of reducing complexity of explicit MPC feedback laws for linear systems is considered. We propose to simplify controllers defined by continuous Piecewise Affine (PWA) functions by employing separating functions. If a state resides in a region where the optimal control action attains a saturated value, the optimal control move is determined from the sign of the separator. Thus, instead of storing all regions, only the unconstrained regions and the separator are needed. We propose several approaches to construct separators with different efficacy and properties.