• Corpus ID: 231786485

Artificial intelligence applied to bailout decisions in financial systemic risk management

  title={Artificial intelligence applied to bailout decisions in financial systemic risk management},
  author={Daniele Petrone and Neofytos Rodosthenous and Vito Latora},
We describe the bailout of banks by governments as a Markov Decision Process (MDP) where the actions are equity investments. The underlying dynamics is derived from the network of financial institutions linked by mutual exposures, and the negative rewards are associated to the banks’ default. Each node represents a bank and is associated to a probability of default per unit time (PD) that depends on its capital and is increased by the default of neighbouring nodes. Governments can control the… 

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