Financial networks with singleton liability priorities

DOI10.1016/J.TCS.2023.113965MaRDI QIDQ6104351zbMATH OpenOpenAlexFDO

Authors Stavros D. Ioannidis, Bart de Keijzer, Carmine Ventre

Publication date 15 June 2023

Published in Theoretical Computer Science (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1016/j.tcs.2023.113965

zbMATH Keywords

financial networksFIXPNP-hardnesssystemic risk

Mathematics Subject Classification ID

Computational difficulty of problems (lower bounds, completeness, difficulty of approximation, etc.) (68Q17) Financial networks (including contagion, systemic risk, regulation) (91G45)

Review text

This paper proposes a formal model of a financial network, consisting of financial entities (banks), their external assets and liabilities between them, in particular debt contracts and credit default swaps (CDSs). The model results to a coloured directed multigraph-like structure carrying all the relevant information. This graph structure is then utilized to consider payment schemes, aiming at the clearing problem for the liabilities of the financial entities. The authors study the clearing problem in this framework under the priority list payment scheme, and provide general results concerning its complexity. In particular, it is shown that when the the firms pay according to a singleton liability priority list, the clearing problem (which is related to a fixed point scheme) is FIXP-complete and provide a number of NP-hardness results for the computation of priority lists that optimise specific objectives. The results may be of relevance to risk management in financial networks.

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Cited in

(13)

• Default ambiguity: finding the best solution to the clearing problem
• Payment scheduling in the interval debt model
• Multi-period liability clearing via convex optimal control
• Uniqueness of Clearing Payment Matrices in Financial Networks
• Optimal clearing payments in a financial contagion model
• On the uniqueness of clearing matrices in financial networks
• On priority-proportional payments in financial networks
• Payment scheduling in the interval debt model
• Dynamic debt swapping in financial networks
• Mixed Nash equilibria in discrete Tullock contests
• Optimal bailouts and strategic debt forgiveness in financial networks
• Strong approximations and irrationality in financial networks with derivatives
• Clearing financial networks with derivatives: from intractability to algorithms

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