which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.Abstract The paper presents a comprehensive model of a banking system that integrates network effects, bankruptcy costs, fire sales, and cross-holdings. For the integrated financial market we prove the existence of a price-payment equilibrium and design an algorithm for the computation of the greatest and the least equilibrium. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, fire sales and cross-holdings on systemic risk. We study policy implications and regulatory instruments, including central bank guarantees and quantitative easing, the significance of last wills of financial institutions, and capital requirements.
We develop a novel approach for pricing cyber insurance contracts. The considered cyber threats, such as viruses and worms, diffuse in a structured data network. The spread of the cyber infection is modeled by an interacting Markov chain. Conditional on the underlying infection, the occurrence and size of claims are described by a marked point process. We introduce and analyze a new polynomial approximation of claims together with a mean-field approach that allows to compute aggregate expected losses and prices of cyber insurance. Numerical case studies demonstrate the impact of the network topology and indicate that higher order approximations are indispensable for the analysis of non-linear claims.
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