The Institute for Statistics and Mathematics is pleased to invite you to this semester’s first research seminar, taking place on campus with the following two talks:

• Rüdiger Frey (Institute for Statistics and Mathematics, WU Vienna)
  A Mean-Field Game Analysis of Systemic Risk under Capital Constraints.
  
  Wednesday, January 21, 20265, 17:15, Building D4, Room D4.0.127
  
  Abstract:

  We analyze the effect of regulatory capital constraints on financial stability in a large homogeneous banking system using a mean-field game (MFG) model.  Each bank holds cash and a tradable risky asset. Banks choose absolutely continuous trading rates in order to maximize expected terminal equity, with trades subject to transaction costs. Capital regulation requires equity to exceed a fixed multiple of the position in the tradable asset; breaches trigger forced liquidation. The  asset drift depends on changes in average asset holdings across banks, so aggregate deleveraging creates contagion effects, leading to an MFG.  We discuss the coupled forward–backward PDE system characterizing equilibria of the MFG, and we solve the constrained MFG numerically.  Experiments demonstrate that capital constraints accelerate deleveraging and limit risk-bearing capacity. In some regimes, simultaneous breaches trigger liquidation cascades.
  The last part of the presentation is devoted to the mathematical analysis of a model with time-smoothed contagion as in, e.g., Hambly, Ledger and Sojmark (2019) or Campi and Burzoni (2024). We characterize optimal strategies for a given evolution of the system and establish the existence of an MFG equilibrium.

Please note that currently there are no Zoom streams planned for the talks in this semester.
For further information (such as related papers, linked software etc.) and the seminar schedule, please see:
www.wu.ac.at/en/statmath/research/resseminar