Post/Doctoral Seminar in Mathematical Finance

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25 September 2018
13:15-14:30

Robert Crowell
University of Bonn

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Title	Optimal Transport and Mechanism Design
Speaker, Affiliation	Robert Crowell, University of Bonn
Date, Time	25 September 2018, 13:15-14:30
Location	HG G 19.2
Abstract	The principal-agent model from economics is a fundamental cornerstone of contract theory. Finding optimal contracts is typically cast as an optimization problem involving convexity constraints. While a variety of methods have been employed to solve such optimization problems, the recent use of techniques from optimal transportation theory has lead to significant progress. This talk will give an overview of these techniques, concentrating in particular on the transportation theoretic approach.

Optimal Transport and Mechanism Designread_more

2 October 2018
15:15-16:30

Eric Schaanning
ETH Zürich

Details

Title	Fire Sales under Solvency and Liquidity Constraints
Speaker, Affiliation	Eric Schaanning, ETH Zürich
Date, Time	2 October 2018, 15:15-16:30
Location	HG G 19.2
Abstract	We build an operational framework for modeling fire sales under the liquidity and solvency constraints of the Basel III regulation, with institutions that seek to minimize their losses whenever they are forced to liquidate assets. First, we derive analytic solutions for the banks’ liquidation problems under the Basel III constraints. Second, we calibrate the model based on supervisory data on the seven major UK banks. Fire sales can be triggered by both solvency and liquidity shocks, and are exacerbated by banks seeking to remain compliant with regulatory standards. We find losses to banks to be sizeable in severe but plausible stress scenarios. The risk-weighted capital ratio and the liquidity coverage ratio cause banks to sell less liquid assets than they would when faced with only a leverage ratio constraint. These effects are economically significant, meaning models with simplified regulation and sub-optimal dealer behaviour are unlikely to adequately capture fire sale dynamics.

Fire Sales under Solvency and Liquidity Constraintsread_more

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