Impact of contingent payments on systemic risk in financial networks
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Publication:2323337
DOI10.1007/S11579-019-00239-9zbMATH Open1422.91740arXiv1805.08544OpenAlexW2963270255MaRDI QIDQ2323337FDOQ2323337
Authors: Zachary Feinstein, Tathagata Banerjee 
Publication date: 30 August 2019
Published in: Mathematics and Financial Economics (Search for Journal in Brave)
Abstract: In this paper we study the implications of contingent payments on the clearing wealth in a network model of financial contagion. We consider an extension of the Eisenberg-Noe financial contagion model in which the nominal interbank obligations depend on the wealth of the firms in the network. We first consider the problem in a static framework and develop conditions for existence and uniqueness of solutions as long as no firm is speculating on the failure of other firms. In order to achieve existence and uniqueness under more general conditions, we introduce a dynamic framework. We demonstrate how this dynamic framework can be applied to problems that were ill-defined in the static framework.
Full work available at URL: https://arxiv.org/abs/1805.08544
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Cited In (17)
- Optimal clearing payments in a financial contagion model
- Uniqueness of equilibrium in a payment system with liquidation costs
- Title not available (Why is that?)
- Contingent Convertible Obligations and Financial Stability
- Seniorities and minimal clearing in financial network games
- Optimization of fire sales and borrowing in systemic risk
- Measuring financial systemic risk: net liability clearing mechanism and contagion effect
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- Equilibria and systemic risk in saturated networks
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