A lending scheme for a system of interconnected banks with probabilistic constraints of failure

@article{Cordoni2020ALS,
title={A lending scheme for a system of interconnected banks with probabilistic constraints of failure},
author={F. Cordoni and L. Persio and Luca Prezioso},
journal={Autom.},
year={2020},
volume={120},
pages={109111}
}

We derive a closed form solution for an optimal control problem related to an interbank lending schemes subject to terminal probability constraints on the failure of banks which are interconnected through a financial network. The derived solution applies to a real banks network by obtaining a general solution when the aforementioned probability constraints are assumed for all the banks. We also present a direct method to compute the systemic relevance parameter for each bank within the network.