[CCoE Notice] Ph.D. Dissertation Defense: Systemic Risk Assessment and Mitigation in Financial Networks Based on Optimization Modeling and Techniques

[Hutchinson, Inez A]

Systemic Risk Assessment and Mitigation in Financial Networks Based on Optimization Modeling and Techniques

Aein Khabazian
Advisor: Dr. Jiming Peng

Date & Time: Friday, March 22th, 2019, 9:00 AM
Venue: Industrial Engineering Conference Room
Engineering Building 2, E214

Abstract:


Since the financial crisis in 2007-2008, the assessment and mitigation of the systemic risk in a financial network has been a major concern in financial engineering. The main challenge in assessing the systemic risk lies in the unavailability of complete information about interbank liabilities while the asset value of the financial institution is subject to market shock. In this work, we first study the vulnerability analysis of the financial network based on the linear optimization model introduced by Eisenberg and Noe (2001), where the asset vector is uncertain. We develop a new extended sensitivity analysis to characterize the conditions under which a bank is solvent, default or bankrupted. Then, we estimate the probability of insolvency and bankruptcy under mild conditions on market shock and network structure. In the second part, we study the case where only partial information regarding the liability matrix is revealed and the asset vector is fixed. We develop an algorithm to identify the most and least stable network structures. In the third part, we propose a new mitigation strategy based on merging and acquisitions to stabilize a financial system. Future research topics will be discussed as well.
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