Systemic Risk: Diffusion Models and Stochastic Games II

Jean-Pierre Fouque
University of California, Santa Barbara (UC Santa Barbara)
Statistics and Applied Probability

We will give a brief general introduction to systemic risk, a new topic within financial mathematics after the recent financial crisis. Then, from the point of view of a structural approach based on first passage for diffusion processes, we will illustrate the difference between credit and systemic risk, and propose a simple model of inter-bank liquidity. In the second part, we explain how this simple model is in fact a Nash equilibrium for a stochastic game of borrowing and lending between banks. If time permits, we will touch upon systemic risk measures, topic of several talks during the workshop.

Presentation (PDF File)

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