We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

"Stress tests are the most innovative regulatory tool to prevent and fight financial crises. Their use has fundamentally changed the mathematical modeling of financial systems, financial risk management in the public and private sector, and the policies designed to prevent and mitigate financial...

Stress tests are the most innovative regulatory tool to prevent and fight financial crises. Their use has fundamentally changed the modeling of financial systems, financial risk management in the public and private sector, and the policies designed to prevent and mitigate financial crises. When...

We review heterogeneous agent models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

What kind of models do we need to guide us through the next crisis? If past crises are any indication, we need to explore new approaches. During the Great Financial Crisis, the models that existed at the time were of little value because they focused on firm-level interactions and did not...

Understanding the interaction between bank solvency and funding cost is a crucial pre-requisite for stress-testing. In this paper we study the sensitivity of bank funding cost to solvency measures while controlling for various other measures of bank fundamentals. The analysis includes two...

In this paper, we consider models of price-mediated contagion in a banking network of common asset holdings. For these models, the literature proposed two alternative classes of liquidation dynamics: threshold dynamics (banks liquidate their investment portfolios only after they have defaulted),...

In this paper, we consider models of price-mediated contagion in a banking network of common asset holdings. For these models, the literature proposed two alternative classes of liquidation dynamics: threshold dynamics (banks liquidate their investment portfolios only after they have defaulted),...