CAPITAL REQUIREMENTS FOR OPERATIONAL RISK: AN INCENTIVE APPROACH

This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive.Operational Risk, Capital Requirements, Dividends, Basel Accords

Doubling bialgebras of rooted trees

The vector space spanned by rooted forests admits two graded bialgebra structures. The first is defined by A. Connes and D. Kreimer using admissible cuts, and the second is defined by D. Calaque, K. Ebrahimi-Fard and the second author using contraction of trees. In this article we define the doubling of these two spaces. We construct two bialgebra structures on these spaces which are in interaction, as well as two related associative products obtained by dualization. We also show that these two bialgebras verify a commutative diagram similar to the diagram verified D. Calaque, K. Ebrahimi-Fard and the second author in the case of rooted trees Hopf algebra, and by the second author in the case of cycle free oriented graphs

Endogenous efforts on communication networks under strategic complementarity

This article explores individual incentives to produce information on communication networks. In our setting, efforts are strategic complements along communication paths with convex decay. We analyze Nash equilibria on a set of networks which are unambiguous in terms of centrality. We first characterize both dominant and dominated equilibria. Second, we examine the issue of social coordination in order to reduce the social dilemma.Communication Network, Endogenous Efforts, Strategic Complements

Competing Activities in Social Networks

A set of agents is organized in a social network, which conveys synergies in two activities. Each agent has one unit of a resource to allocate between two activities. We show that individual choices are shaped by Bonacich centrality measures and an attractiveness multiplier. The latter, combined with the elasticity of Bonacich centrality with respect to the intensity of interaction, drives the sign of the network reaction to a modication of the costs of activities.Social Network, Limited Resource, Competing Activities, Attractiveness Multiplier, Elasticity of Bonacich Centrality.

Risk taking under heterogenous risk sharing

We revisit the common view that risk sharing enhances risk taking in the context of heterogenous risk sharing in a small economy. Under low volumes of transfers, we express individual risk level in terms of Bonacich measure. We find that heterogeneity combined to strategic interaction imply that risk sharing enhances risk taking only in average. However, under high transfer volumes, risk sharing may reduce risk taking. We also provide conditions under which agents under or over invest with respect to the risk allocation maximizing the sum of profits.Risk taking ; Heterogenous risk sharing ; Strategic Interactions ; Bonacich measure

Asymmetric Interaction and Aggregate Incentives: a Note

We consider a model of interdependent efforts, with linear and possibly asymmetric interaction. We examine how a variation of the intensity of interaction affects aggregate effort. We show that the relevant information is given by the transposed system.Asymmetric Interaction, Social Network, Aggregate Effort, Transposed System

CAPITAL REQUIREMENTS FOR OPERATIONAL RISK: AN INCENTIVE APPROACH

This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive