A.Lipton, D. Shrier and A. Pentland, Digital Banking Manifesto 2.0. Global Fintech, D. Shrier and A. Pentland (eds), MIT Press - 2022.

We wrote the original version of the Digital Banking Manifesto in 2016 when the economy as a whole, including the banking system, was on the mend after fairly traumatic experiences of the Global Financial Crisis (GFC). We are updating the Manifesto in 2020 amid an economic crisis of arguably more massive proportions ignited by the Cov19 virus. The GFC  was a wasted opportunity to reorganize the world financial ecosystem. If history could teach us anything, the current one is likely to fall in the same category. Already in the midst of the Cov19 crisis, digital banking technology adoption is accelerating all over the globe.

Yet, reform is badly needed. In the last decade, too-big-to-fail banks became bigger rather than smaller, massively increasing their share of the banking business. For instance, JPMorgan has nearly twice as many assets now as it had at the end of 2006 just before the onset of the crisis; over the same period, assets of China's four systemically essential banks more than tripled. Although better capitalized, banking institutions have become so complicated that it is tough to ascertain their stability and creditworthiness with certainty. Their balance sheets are opaque and have complexity risks that are not well understood by regulators, depositors, investors, or even internal management. This complexity can reach high levels and may become too-big-to-manage.

A.Lipton and T. Hardjono, Blockchain Intra- and Interoperability. Innovative Technology at the interface of Finance and Operations, V. Babich, J. Birge and G. Hilary (eds), Springer Series in Supply Chain Management - 2022

We introduce blockchains and distributed ledgers and study their intra- and interoperability. Blockchain intraoperability allows one to swap different assets defined on the same blockchain supporting smart contracts. Blockchain interoperability enables one to exchange or move assets residing on different blockchains. Finding practical mechanisms for intra- and interoperability is of paramount importance for the ultimate success of blockchain technology. We recommend using automated market makers for intraoperability and gateways and atomic swaps for interoperability.

S. Feenan, D. Heller, A.Lipton, M. Morini, R. Ram, R. Sams, T. Swanson, S. Yong and D. Barrero Zalles, Decentralized Financial Market Infrastructures. The Journal of Fintech - 2021

Financial market infrastructures (FMIs) have evolved as core elements of highly intermediated financial markets partly due to the technological limitations of the time when they were first architected. Organizations and firms were unable to share records without having to entrust a single party to manage them; hence this phenomenon of intermediation has led to significant information silos. Simultaneously, it has driven the structure of business models, as well as regulatory supervision and oversight, in ways that furthered intermediation and also created a misalignment of incentives and risk taking between entities now categorized as systemically important financial institutions (SIFIs) and systemically important financial market infrastructures. Over time, this consolidation has led to highly concentrated FMIs and with it, concentrated risks. Some of these risks go beyond the credit risks of just one or two institutions, becoming instead systemic risks that are continuously monitored by regulatory bodies based on coordinated sets of principles and guidelines including the 2012 Principles for Financial Market Infrastructures from CPMI and IOSCO. Over the past decade, advances in public key cryptography, hash functions, virtualisation, distributed consensus, multiparty computation, and peer-to-peer networking have led to experimentation around record sharing between erstwhile competitive firms. Over the past five years, a series of independent efforts has chaperoned regulatory requirements into a digital, automated state that enables secure information sharing in full compliance with the law, while simultaneously enabling market participants to mutualise infrastructure that would otherwise be run by a single trusted party. With these developments, many of the services that centralised intermediaries currently provide could potentially be replaced by decentralised infrastructures or decentralised financial market infrastructure (dFMI). dFMI also enables a change in business structure, where a re-alignment of incentives can take place such that those firms taking risks can fully bear the consequences of these risks.

A.Lipton, A. Sardon, F. Schaer and C. Schupbach, Stablecoins. Building the New Economy. A. Pentland, A.Lipton and T. Hardjono. MIT Press - 2021

What started as a niche phenomenon within the cryptocurrency community has now reached the realms of multinational conglomerates, policymakers, and central banks. From J.P. Morgan’s Jamie Dimon to Facebook’s Mark Zuckerberg, stable coins have made their way onto the agenda of today’s top CEOs. As projects such as Libra have enjoyed broad media coverage, they are also increasingly being scrutinized by regulatory authorities, and as the term stablecoin spread, its meaning started to blur. This is problematic because an unclear definition may make us susceptible to deceptive innovation; that is, reintroducing existing services but with a different appearance. We ought to ask ourselves whether stablecoins are here to stay or whether they are simply old wine in new bottles. This chapter aims to educate on stablecoins by providing historical context on their origin and by describing which key factors have been driving their adoption. Moreover, we review existing terminologies and taxonomies on stablecoins and examine their disruptive potential. Based on this, we propose a novel definition of stablecoins and outline an alternative taxonomy. We briefly discuss the different use cases of stablecoins as well as the underlying economic incentives for creating them. We also touch on regulatory considerations and briefly summarize key factors driving the future development of stablecoins.

A.Lipton, Cryptocurrencies change everything. Quantitative Finance - 2021.

A.Itkin, A.Lipton, and D. Muravey, Multilayer heat equations: applications to finance. Frontiers of Mathematical Finance - 2021

In this paper, we develop a Multilayer (ML) method for solving one-factor parabolic equations. Our approach provides a powerful alternative to the well-known finite difference and Monte Carlo methods. We discuss various advantages of this approach, which judiciously combines semi-analytical and numerical techniques and provides a fast and accurate way of finding solutions to the corresponding equations. To introduce the core of the method, we consider multilayer heat equations, known in physics for a relatively long time but never used when solving financial problems. Thus, we expand the analytic machinery of quantitative finance by augmenting it with the ML method. We demonstrate how one can solve various problems of mathematical finance by using our approach. Specifically, we develop efficient algorithms for pricing barrier options for time-dependent one-factor short-rate models, such as Black-Karasinski and Verhulst. Besides, we show how to solve the well-known Dupire equation quickly and accurately. Numerical examples confirm that our approach is considerably more efficient for solving the corresponding partial differential equations than the conventional finite difference method by being much faster and more accurate than the known alternatives.

A.Pentland, A.Lipton and T. Hardjono, Time for a New, Digital Bretton Woods. Barron’s - 2021

A.Lipton, The Man Who Solved the Market by Gregory Zuckerman. Quantitative Finance - 2021.

A.Lipton and M. Lopez de Prado, A closed-form solution for optimal Ornstein-Uhlenbeck driven trading strategies. International Journal of Theoretical and Applied Finance - 2020

When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through an Ornstein-Uhlenbeck (OU) process. arket makers provide liquidity in an attempt to monetize this oscillation. They enter a long position when a security is priced below its estimated equilibrium level, and they enter a short position when a security is priced above its estimated equilibrium level. They hold that position until one of three outcomes occur: (1) they achieve the targeted profit; (2) they experience a maximum tolerated loss; (3) the position is held beyond a maximum tolerated horizon. All market makers are confronted with the problem of defining profit-taking and stop-out levels. More generally, all execution traders acting on behalf of a client must determine at what levels an order must be fulfilled. Those optimal levels can be determined by maximizing the trader's Sharpe ratio in the context of OU processes via Monte Carlo experiments Lopez2018. This paper develops an analytical framework and derives those optimal levels by using the method of heat potentials Lipton2018, Lipton2020a.

A.Lipton and M. Lopez de Prado, A closed-form solution for optimal mean-reverting trading strategies. Risk Magazine - 2020

When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through an Ornstein-Uhlenbeck (OU) process. Market makers provide liquidity in an attempt to monetize this oscillation. They enter a long position when a security is priced below its estimated equilibrium level, and they enter a short position when a security is priced above its estimated equilibrium level. They hold that position until one of three outcomes occur: (1) they achieve the targeted profit; (2) they experience a maximum tolerated loss; (3) the position is held beyond a maximum tolerated horizon. All market makers are confronted with the problem of defining profit-taking and stop-out levels. More generally, all execution traders holding a particular position for a client must determine at what levels an order must be fulfilled. Those optimal levels can be determined by maximizing the trader’s Sharpe ratio in the context of OU processes via Monte Carlo experiments, [13]. This paper develops an analytical framework and derives those optimal levels by using the method of heat potentials, [6, 8].

A.Lipton and M. Lopez de Prado, What quants can learn from the COVID crisis. Risk Magazine - 2020

A.Lipton and M. Lopez de Prado, Mitigation Strategies for COVID-19: Lessons from the K-SEIR Model. SSRN - 2020

D. Gershon, A.Lipton and H. Levine, Managing COVID-19 Pandemic without Destroying the Economy. arXiv - 2020

A.Lipton, A. Sardon, F. Schaer and C. Schupbach, Stablecoins, Digital Currency, and the Future of Money. Building Blocks Magazine - 2020

A.Lipton, What the Fed’s New Inflation Policy Means for Stablecoins. CoinDesk - 2020

A.Lipton, Stablecoins Are the Bridge From Central Banks to Consumer Payments. CoinDesk - 2020

A.Lipton, Old Problems, Classical Methods, New Solutions. International Journal of Theoretical and Applied Finance - 2020

We use a powerful extension of the classical method of heat potentials, recently developed by the present author and his collaborators, to solve several significant problems of financial mathematics. We consider the following problems in detail: (A) calibrating the default boundary in the structural default framework to a constant default intensity; (B) calculating default probability for a representative bank in the mean-field framework; (C) finding the hitting time probability density of an Ornstein-Uhlenbeck process. Several other problems, including pricing American put options and finding optimal mean- reverting trading strategies, are mentioned in passing. Besides, two nonfinancial applications - the supercooled Stefan problem and the integrate-and-fire neuroscience problem - are briefly discussed as well.

T. Hardjono, A.Lipton and A. Pentland, Privacy-Preserving Claims Exchange Networks for Virtual Asset Service Providers. 2020 IEEE International Conference on Blockchain and Cryptocurrency - 2020.

In order for VASPs to fulfill the regulatory requirements from the FATF and the Travel Rule, VASPs need access to truthful information regarding originators, beneficiaries and other VASPs involved in a virtual asset transfer instance. Additionally, in seeking data regarding subjects (individuals or organizations) VASPs are faced with privacy regulations such as the GDPR and CCPA. In this paper we a propose privacy preserving claims issuance model that carries indicators of the provenance of the data and the algorithms used to derive the claim or assertion. This allows VASPs to obtain originator and beneficiary information without necessarily having access to the private data about these entities. We also propose a consortium trust network arrangement for VASPs to exchange signed claims about subjects and their public-key information or certificate. Index Terms—virtual assets, blockchain technology, cryptocurrency, trust network, cryptography.

T. Hardjono, A.Lipton and A. Pentland, Towards a design philosophy for interoperable blockchain systems. IEEE Transactions on Engineering Management - 2020.

There is considerable interest today in the use of blockchain technology to provide better visibility into shared information among a number of participants and systems arranged in a P2P topology. However, more attention needs to be placed on challenges around the aspects of the manageability of blockchain systems, the survivability of blockchain networks, and the cybersecurity of systems and infrastructures that participate in blockchain communities. Crucial to answering these challenges is the need to understand aspects of the Internet architecture that has made it scalable, resilient and a commercial success as a global connectivity infrastructure. In this paper we discuss a design philosophy for interoperable blockchain systems, using the design philosophy of the Internet architecture as the basis to identify key design principles. We recast some of the challenges faced in the design of the Internet architecture to that of the design of an interoperable blockchain architecture. We emphasize interoperability as a crucial requirement for the survivability and manageability of blockchain systems. The goal is to define an interoperable blockchain architecture, in which common components of the blockchain architecture can begin to be standardized, leading to lowering of development costs, better reusability and higher degree of interoperability.

T. Hardjono, A.Lipton and A. Pentland, Towards a Public Key Management Framework for Virtual Assets and Virtual Asset Service Providers. The Journal of Fintech - 2020.

The recent FATF Recommendations denes virtual assets and virtual assets service providers (VASP), and requires under the Travel Rule that originating VASPs obtain and hold required and accurate originator information and required beneciary informa- tion on virtual asset transfers. In this paper we discuss the notion of key ownership evidence as a core part of originator and beneciary information required by the FATF Recommendation. We discuss approaches to securely communicate the originator and beneciary information between VASPs, and review existing standards for public key certicates as applied to VASPs and virtual asset transfers. We propose the notion of a trust network of VASPs in which originator and beneciary information, including key ownership information, can be exchanged securely o-chain while observing individual privacy requirements.

A.Lipton, Journal of Derivatives Special Issue “Physics and Derivatives” Interview Questions and Answers. The Journal of Derivatives - 2020

A.Lipton and V. Kaushansky, Physics and Derivatives: On Three Important Problems in Mathematical Finance. The Journal of Derivatives - 2020

In this article, we use recently developed extension of the classical heat potential method in order to solve three important but seemingly unrelated problems of financial engineering: (A) American put pricing; (B) default boundary determination for the structural default problem; and (C) evaluation of the hitting time probability distribution for the general time-dependent Ornstein–Uhlenbeck process. We show that all three problems boil down to analyzing behavior of a standard Wiener process in a semi-infinite domain with a quasi-square-root boundary.

A.Lipton and V. Kaushansky, On the first hitting time density for a reducible diffusion process. Quantitative Finance, DOI: 10.1080/14697688.2020.1713394 - 2020

In this paper, we study the classical problem of the first hitting time density to a moving boundary for a diffusion process, which satisfies the Cherkasov condition, and hence, can be reduced to a standard Wiener process. We give two complementary (forward and backward) formulations of this problem and provide semi-analytical solutions for both. By using the method of heat potentials, we show how to reduce these problems to linear Volterra integral equations of the second kind. For small values of t, we solve these equations analytically by using Abel equation approximation; for larger t we solve them numerically. We illustrate our method with representative examples, including Ornstein– Uhlenbeck processes with both constant and time-dependent coefficients. We provide a comparison with other known methods for finding the hitting density of interest, and argue that our method has considerable advantages and provides additional valuable insights. We also show applications of the problem and our method in various areas of financial mathematics.

A.Lipton, V. Kaushansky and C. Reisinger, Semi-analytical solution of a McKean-Vlasov equation with feedback through hitting a boundary. Euro. Jnl of Applied Mathematics - 2019.

In this paper, we study the nonlinear diffusion equation associated with a particle system where the common drift depends on the rate of absorption of particles at a boundary. We provide an interpretation of this equation, which is also related to the supercooled Stefan problem, as a structural credit risk model with default contagion in a large interconnected banking system. Using the method of heat potentials, we derive a coupled system of Volterra integral equations for the transition density and for the loss through absorption. An approximation by expansion is given for a small interaction parameter. We also present a numerical solution algorithm and conduct computational tests. Key words: McKean–Vlasov equations, supercooled Stefan problem, Volterra equations, structural credit contagion model, semi-analytic solution.

A.Lipton, Towards a stable tokenized medium of exchange. Cryptoassets: Legal, Regulatory and Monetary Perspectives, C. Brummer, Ed., Oxford University Press - 2019.

Existing banking and payment systems, while still functioning, are rapidly becoming obsolete and misaligned with the new challenges of the modern economy. While open access Internet Protocols have unleashed a wave of creativity and growth in numerous fields, banking is not one of them. The reason stems mostly from the fact that internet protocols for money and identity, while sorely needed, are conspicuously absent at present. We argue that a regulatorily compliant fiat-backed token, which can be viewed as an electronic analogue of cash, can help to fill this gap. Experience suggests that all decentralized crypto coins are inherently unstable, which makes them less than useful for commercial applications. Contrary to often-made claims, it is not possible to build a truly decentralized stable token. We argue that any potentially successful stable token has to be at least partially centralized, with varying degrees of decentralization. We describe four approaches to building stable tokens including fully collateralized custodial tokens, partially collateralized custodial tokens, tokens overcollateralized with cryptos, and dynamically stabilized tokens, and conclude that only fully collateralized tokens can be stable, even under extreme circumstances. We also introduce narrow banks and describe their important role as anchors of a diverse digital banking ecosystem and potential emitters of central bank backed digital cash.

A.Lipton, Don’t fear the clearer. Risk.net - 2019 (May).

M. Grasselli and A.Lipton, The broad consequences of narrow banking. International Journal of Theoretical and Applied Finance Vol. 22, No. 1 - 2019.

We investigate the macroeconomic consequences of narrow banking in the context of stock-flow consistent models. We begin with an extension of the Goodwin–Keen model incorporating time deposits, government bills, cash, and central bank reserves to the base model with loans and demand deposits, and use it to describe a fractional reserve banking system. We then characterize narrow banking by a full reserve requirement on demand deposits and describe the resulting separation between the payment system and lending functions of the resulting banking sector. By way of numerical examples, we explore the properties of fractional and full reserve versions of the model and compare their asymptotic properties. We find that narrow banking does not lead to any loss in economic growth when both versions of the model converge to a finite equilibrium, while allowing for more direct monitoring and prevention of financial breakdowns in the case of explosive asymptotic behavior.

M. Grasselli and A.Lipton, On the normality of negative interest rates. Review of Keynesian Economics, Vol. 7 No. 2, Summer 2019, pp. 201–219 - 2019.

We argue that a negative interest-rate policy (NIRP) can be an effective tool for macroeconomic stabilization. We first discuss how implementing negative rates on reserves held at a central bank does not pose any theoretical difficulty, with a reduction in rates operating in exactly the same way when rates are positive or negative, and show that this is compatible with an endogenous-money point of view. We then propose a simplified stock–flow consistent macroeconomic model where rates are allowed to become arbitrarily negative and present simulation evidence for their stabilizing effects. In practice, the existence of physical cash imposes a lower bound for interest rates, which in our view is the main reason for the lack of effectiveness of negative interest rates in the countries that adopted them as part of their monetary policy. We conclude by discussing alternative ways to overcome this lower bound, in particular the use of central-bank digital currencies.

R. Dembo, A.Lipton and S. Burkov, Account Platform for a Distributed Network of Nodes. US Patent Application Publication, US 2018 / 0293553 A1 - 2018.

Embodiments described herein relate to a network of bank nodes to transfer funds to different central bank systems . An account platform generates and record blocks on a distributed block chain across computing devices to create a ledger of transaction records . The bank nodes connect directly to central - bank systems for deposit and withdraw transactions . The account platform is configured to output dynamic bank and customer records using data elements of the distributed ledger.

A.Lipton and V. Kaushansky, On the First Hitting Time Density of an Ornstein-Uhlenbeck Process. Working Paper - 2018.

In this paper,we study the classical problem of the first passage hitting density of an Ornstein–Uhlenbeck process. We give two complementary (forward and backward) formulations of this problem and provide semi analytical solutions for both. The corresponding problems are comparable in complexity. By using the method of heat potentials, we show how to reduce these problems to linear Volterra integral equations of the second kind. For small values of t, we solve these equations analytically by using Abel equation approximation; for larger t we solve them numerically. We also provide a comparison with other known methods for finding the hitting density of interest, and argue that our method has considerable advantages and provides additional valuable insights.

A.Lipton, Systemic Risks in Central Counterparty Clearing House Networks. Margin in Derivatives Trading, L. Andersen and M. Pykhtin, Eds. - 2018.

The global financial crisis of 2007–10 had enormous implications for the financial ecosystem as a whole.Among many other changes to its way of working, both the range of products and the number of trades cleared by central counterparty clearing houses (CCPs) increased enormously (see, for example, US Office of Financial Research 2017). As a result, whether they like it or not, all large banks are engaged in trading on CCPs.Accordingly, there is a clear need for banks to assess any potential losses due to defaults of general clearing members (GCMs) and CCPs through the CCP network they participate in. The interconnectedness of the CCPs themselves, arising due to the fact that they are linked through common clearing members, means that it is important to model most of the network. In this chapter, we take the perspective of a hypothetical banking group, “XYZ Bank”, and explain how it may assess its risks based on the partial information available to it. Typically, a banking group has multiple subsidiaries, each of which are distinct clearing members. Understanding the risk of XYZ Bank is a challenging task, which requires analysing the contingent cash flows between a large number of agents (hundreds of GCMs operating on multiple CCPs) that have a complex interrelationship. To describe this relationship adequately requires capturing the dynamics of variation margin (VM), initial margin (IM), default fund (DF), reassignment of trades in the event of a member default and allocation of these default losses.

A.Lipton, T. Hardjono and A. Pentland, Digital Trade Coin (DTC): Towards a more stable digital currency. Royal Society Open Science  - 2018.

We study the evolution of ideas related to creation of asset backed currencies over the last 200 years and argue that recent developments related to distributed ledger technologies and blockchains give asset-backed currencies a new lease of life. We propose a practical mechanism combining novel technological breakthroughs with well-established hedging techniques for building an asset-backed transactional oriented cryptocurrency, which we call the digital trade coin (DTC). We show that in its mature state, the DTC can serve as a much-needed counterpoint to fiat reserve currencies of today.

A.Lipton, A. Pentland and T. Hardjono, Narrow banks and fiat-backed digital coins. The CAPCO Institute Journal of Financial Transformation. #47  - 2018.

We outline a framework for issuing fi at-backed coins to a wide set of end-users. We show that a narrow bank is an important part of this framework, needed to increase circulation and acceptance of such coins. We argue that fi at-backed coins issued by a purpose-built narrow bank have considerable advantages compared to central bank digital cash, and can be used to achieve improved financial stability and solve some of the more vexing problems affecting financial infrastructure.

A.Lipton and A. Pentland, Breaking the bank. Scientific American - 2018.

A.Lipton, Blockchains and distributed ledgers in retrospective and perspective.  The Journal of Risk Finance, Vol. 19 Issue: 1, pp.4-25, 2018.

Purpose – The purpose of this paper is to introduce blockchains and distributed ledgers and describe their potential applications to money and banking. Design/Methodology/Approach – The analysis compares public and private ledgers and outlines the suitability of various types of ledgers for different purposes. Furthermore, a few historical prototypes of blockchains and distributed ledgers are presented, and results of their hard forking are illustrated. Next, some potential applications of distributed ledgers to trading, clearing and settlement, payments, trade finance, etc. are outlined. Findings – Monetary circuits are argued to be natural applications for blockchains. Finally, the role of digital currencies in modern society is articulated and various forms of digital cash, such as central bank issued electronic cash, bank money, Bitcoin and P2P money, are compared and contrasted.

V. Kaushansky, A.Lipton and C. Reisinger, Numerical analysis of an extended structural default model with mutual liabilities and jump risk. Journal of Computational Science 24 (2018) 218–231.

We consider a structural default model in an interconnected banking network as in [1], with mutual obligations between each pair of banks. We analyse the model numerically for two banks with jumps in their asset value processes. Specifically, we develop a finite difference method for the resulting two-dimensional partial integro-differential equation, and study its stability and consistency. We then compute joint and marginal survival probabilities, as well as prices of credit default swaps (CDS), first-to-default swaps (FTD), Credit and Debt Value Adjustments (CVA and DVA). Finally, we calibrate the model to market data and assess the impact of jump risk.

V. Kaushansky, A.Lipton and C. Reisinger, Transition probability of Brownian motion in the octant and its application to default modelling. APPLIED MATHEMATICAL FINANCE (2018).

We derive a semi-analytical formula for the transition probability of three-dimensional Brownian motion in the positive octant with absorption at the boundaries. Separation of variables in spherical coordinates leads to an eigenvalue problem for the resulting boundary value problem in the two angular components. The main theoretical result is a solution to the original problem expressed as an expansion into special functions and an eigenvalue which has to be chosen to allow a matching of the boundary condition. We discuss and test several computational methods to solve a finite-dimensional approximation to this nonlinear eigenvalue problem. Finally, we apply our results to the computation of default probabilities and credit valuation adjustments in a structural credit model with mutual liabilities.

Filling the gaps smoothly, A. Itkin and A.Lipton. Journal of Computational Science 24 (2018) 195–208.

The calibration of a local volatility models to a given set of option prices is a classical problem of mathematical finance. It was considered in multiple papers where various solutions were proposed. In this paper an extension of the approach proposed in Lipton, Sepp 2011 is developed by (i) replacing a piece-wise constant local variance construction with a piecewise linear one, and (ii) allowing non-zero interest rates and dividend yields. Our approach remains analytically tractable; it combines the Laplace transform in time with an analytical solution of the resulting spatial equations in terms of Kummer’s degenerate hypergeometric functions.

A. Itkin and A.Lipton, Structural default model with mutual obligations. Rev Deriv Res (2017) 20:15–46.

In this paper we consider mutual obligations in an interconnected bank system and analyze their impact on the joint and marginal survival probabilities for individual banks. We also calculate prices of the corresponding credit default swaps and first-to-default swaps. To make the role of mutual obligations more transparent, we develop a simple structural default model with banks’ assets driven by correlated multidimensional Brownian motion with drift. We calculate closed form expressions for many quantities of interest and use them for the efficient model calibration. We demonstrate that mutual obligations have noticeable impact on the system behavior.

R. Barker, A. Dickinson, A.Lipton and R. Virmani, Systemic risks in CCP networks. Risk.Net - 2017 (January).

We propose a model for the credit and liquidity risks faced by clearing members of Central Counterparty Clearing houses (CCPs). By considering the entire network of CCPs and clearing members, we investigate the distribution of losses to default fund contributions and contingent liquidity requirements for each clearing member.

D. Filipovic and A.Lipton, Pas de cryptomonnaies sans technologie blockchain. Le Temps  - 2017.

D. Filipovic and A.Lipton, Keine Kryptowahrungen ohne Blockchain-Technologie. FINANZ und WIRTSCHAFT  - 2017.

A.Lipton, Money Changes Everything: How Finance Made Civilization Possible, by William N. Goetzmann. Quantitative Finance - 2017.

A.Lipton and I. Tulchinsky, Bitcoin blockchain and beyond. WorldQuant - 2017.

Bitcoin may not be the disruptive force that some have predicted, but the distributed ledger technology underpinning the cryptocurrency has the potential to transform the financial ecosystem.

A.Lipton, Can quants defuse the pension time bomb? Risk.Net - 2016 (December).

Alex Lipton argues new quantitative methods are needed to solve the looming pension crisis. There is an urgent need to develop a new, 
robust and intuitive asset management framework. The key to accomplishing this task is to be able to maximize the probability of achieving one's investment goal in the real-world measure...

A.Lipton, The decline of the cash empire. Risk.Net - 2016 (November).

The last line of defence between us and punitive negative rates is paper currency. It is possible incumbent banks have outlived
their usefulness, and need to morph into something more compatible with technical progress achieved in other industries...

A.Lipton, Blockchain: a solution looking for a problem. Risk.Net - 2016 (October).

The last line of defence between us and punitive negative rates is paper currency. It is possible incumbent banks have outlived
their usefulness, and need to morph into something more compatible with technical progress achieved in other industries…

A.Lipton, Macroeconomic theories: not even wrong. Risk.Net - 2016 (September).

Flawed and inconsistent mainstream macroeconomic theories such as efficient market hypothesis are dangerous to society, says Alexander Lipton. These theories are not only pointless; they are dangerous. They adversely affect both academic discourse and the practical actions of regulators and politicians.

A.Lipton, Banks must embrace their digital destiny. Risk.Net - 2016 (August).

Alexander Lipton believes the time is right for advanced digital banks to take the industry forward, and quants can lead the charge. This situation opens a unique opportunity for building a digital bank from scratch by utilising the most advanced technologies.

A.Lipton, On derivatives and quants. Risk.Net - 2016 (July).

Alex Lipton on how the role of quants is adapting to the new financial environment.

A.Lipton, D. Shrier and A. Pentland, Digital Banking Manifesto: The End of Banks? Visionary Future - 2016.

A.Lipton, Modern monetary circuit theory, stability of interconnected banking network, and balance sheet optimization for individual banks. International Journal of Theoretical and Applied Finance Vol. 19, 2016.

A modern version of monetary circuit theory with a particular emphasis on stochastic underpinning mechanisms is developed. It is explained how money is created by the banking system as a whole and by individual banks. The role of central banks as system stabilizers and liquidity providers is elucidated. It is shown how in the process of money creation banks become naturally interconnected. A novel extended structural default model describing the stability of the Interconnected banking network is proposed. The purpose of bank capital and liquidity is explained. Multi-period constrained optimization problem for bank balance sheet is formulated and solved in a simple case. Both theoretical and practical aspects are covered.