Densely Entangled Financial Systems

In [1] Zawadoski introduces a banking network model in which the asset and counter-party risks are treated separately and the banks hedge their assets risks by appropriate OTC contracts. In his model, each bank has only two counter-party neighbors, a bank fails due to the counter-party risk only if at least one of its two neighbors default, and such a counter-party risk is a low probability event. Informally, the author shows that the banks will hedge their asset risks by appropriate OTC contracts, and, though it may be socially optimal to insure against counter-party risk, in equilibrium banks will {\em not} choose to insure this low probability event. In this paper, we consider the above model for more general network topologies, namely when each node has exactly 2r counter-party neighbors for some integer r>0. We extend the analysis of [1] to show that as the number of counter-party neighbors increase the probability of counter-party risk also increases, and in particular the socially optimal solution becomes privately sustainable when each bank hedges its risk to at least n/2 banks, where n is the number of banks in the network, i.e., when 2r is at least n/2, banks not only hedge their asset risk but also hedge its counter-party risk.Comment: to appear in Network Models in Economics and Finance, V. Kalyagin, P. M. Pardalos and T. M. Rassias (editors), Springer Optimization and Its Applications series, Springer, 201

On the Computational Complexity of Measuring Global Stability of Banking Networks

Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current and past decade has shown that one important cause of instability in global markets is the so-called financial contagion, namely the spreading of instabilities or failures of individual components of the network to other, perhaps healthier, components. This leads to a natural question of whether the regulatory authorities could have predicted and perhaps mitigated the current economic crisis by effective computations of some stability measure of the banking networks. Motivated by such observations, we consider the problem of defining and evaluating stabilities of both homogeneous and heterogeneous banking networks against propagation of synchronous idiosyncratic shocks given to a subset of banks. We formalize the homogeneous banking network model of Nier et al. and its corresponding heterogeneous version, formalize the synchronous shock propagation procedures, define two appropriate stability measures and investigate the computational complexities of evaluating these measures for various network topologies and parameters of interest. Our results and proofs also shed some light on the properties of topologies and parameters of the network that may lead to higher or lower stabilities.Comment: to appear in Algorithmic

Compensation and negotiation in the siting of hazardous-waste facilities

The transport and storage/disposal of hazardous materials is clearly of fundamental importance to the continuing economic and social well-being of the industrialized world. This is also an extremely difficult area for public policy, since it involves potentially large risks, and unresolved technical and economic uncertainties make informed consensus among affected stakeholders difficult. This paper will briefly review current policy options for siting storage/disposal facilities for toxic wastes. Emphasis will be on policies which are economically efficient and which provide incentives to various stakeholders to participate constructively in negotiating equitable risk-sharing solutions to the problems of interest. In particular, incentives based on compensation and insurance will be discussed in light of experience from several countries

v. Bensoussan(A), Kleindorfer (P.R.H Tapiero (Ch. S).

(Studies in Manage c Sciences. Vol. 9)Amsterdams New Yorks Oxford ; North-Holland Publ. Comp., 1978He.16

Hoechstlast- und Spitzenlasttarife Ein Vergleich der Strompreise fuer Sonderabnehmer in der Bundesrepublik Deutschland und in Frankreich

SIGLEDEGerman

Idiosyncratic Behavior of Globally Distributed Manufacturing

Part VI: Services, Supply Chains and OperationsInternational audienceThe paper presents results of empirical research, which explores systemic background of increasing turbulences and disruptions within globally distributed manufacturing networks. Among the identified factors three have biggest impact: (1) the level of completeness and connectivity of the networks, i.e. topological characteristics of the manufacturing network (2) the herd behavior of clients and decision makers, which enhances or tames the demand due to occasional asymmetry of their perception of the demand (3) the diversity of operational environments within the network, which itself may be a dominant factor of turbulences or even disruptions of the operational processes. It means that in some circumstances, the internal resources of companies may have limited value as a countermeasure against the unlikely effects of turbulences and disruptions. The research has also identified some other factors of idiosyncratic behavior of globally distributed manufacturing, which are rooted in some particular operational policies