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Banking risk as an epidemiological model: an optimal control approach

Author

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  • Olena Kostylenko
  • Helena Sofia Rodrigues
  • Delfim F. M. Torres

Abstract

The process of contagiousness spread modelling is well-known in epidemiology. However, the application of spread modelling to banking market is quite recent. In this work, we present a system of ordinary differential equations, simulating data from the largest European banks. Then, an optimal control problem is formulated in order to study the impact of a possible measure of the Central Bank in the economy. The proposed approach enables qualitative specifications of contagion in banking obtainment and an adequate analysis and prognosis within the financial sector development and macroeconomic as a whole. We show that our model describes well the reality of the largest European banks. Simulations were done using MATLAB and BOCOP optimal control solver, and the main results are taken for three distinct scenarios.

Suggested Citation

  • Olena Kostylenko & Helena Sofia Rodrigues & Delfim F. M. Torres, 2017. "Banking risk as an epidemiological model: an optimal control approach," Papers 1707.03500, arXiv.org.
    • Handle: RePEc:arx:papers:1707.03500
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    References listed on IDEAS

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    1. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
    2. Toivanen, Mervi, 2013. "Contagion in the interbank network : An epidemiological approach," Research Discussion Papers 19/2013, Bank of Finland.
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    Cited by:

    1. Sui, Xin & Li, Liang, 2018. "Guarantee network model and risk contagion," Chaos, Solitons & Fractals, Elsevier, vol. 106(C), pages 323-329.
    2. Olena Kostylenko & Helena Sofia Rodrigues & Delfim F. M. Torres, 2019. "The spread of a financial virus through Europe and beyond," Papers 1901.07241, arXiv.org.
    3. Bucci, Alberto & La Torre, Davide & Liuzzi, Danilo & Marsiglio, Simone, 2019. "Financial contagion and economic development: An epidemiological approach," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 211-228.

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