Optimal payments to connected depositors in turbulent times: a Markov chain approach
type: Item
instance of: scholarly article
title: Optimal payments to connected depositors in turbulent times: a Markov chain approach
zbMATH Open document ID: 1390.93866
DOI: 10.1155/2018/9434608
author: Dávid Csercsik
author: Hubert János Kiss
published in: Complexity
publication date: 2018-07-06T00:00:00Z
review text: Summary: We propose a discrete time probabilistic model of depositor behavior which takes into account the information flow among depositors. In each time period each depositors' current state is determined in a stochastic way, based on their previous state, the state of other connected depositors, and the strategy of the bank. The bank offers payment to impatient depositors (those who want to withdraw their funds) who accept or decline them with certain probability, depending on the offered amount. Our principal aim is to see what are the optimal offers of the bank if it wants to keep the expected chance of a bank run under a certain level and minimize its expected payments, while taking into account the connection structure of the depositors. We show that in the case of the proposed model this question results in a nonlinear optimization problem with nonlinear constraints and that the method is capable of accounting for time-varying resource limits of the bank. Optimal offers increase (a) in the degree of the depositor, (b) in the probability of being hit by a liquidity shock, and (c) in the effect of a neighboring impatient depositor.
Mathematics Subject Classification ID: 93E20
Mathematics Subject Classification ID: 60J10
Mathematics Subject Classification ID: 91G10
Mathematics Subject Classification ID: 93C10
zbMATH DE Number: 6899128
zbMATH Keywords: discrete time probabilistic model
zbMATH Keywords: depositor behavior
zbMATH Keywords: nonlinear optimization problem with nonlinear constraints
zbMATH Keywords: Markov chain
describes a project that uses: OPTI
describes a project that uses: NLopt
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2018/9434608
OpenAlex ID: W3124026670
cites work: Bank Runs, Deposit Insurance, and Liquidity
cites work: Implementing efficient allocations in a model of financial intermediation
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description: scientific article; zbMATH DE number 6899128