Dynamic Clearing and Contagion in Financial Networks
Mathematical Finance
2024-06-28 v7 Risk Management
Abstract
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash account and long-term capital account to more accurately model the health of a financial institution. In doing so, such a system allows us to distinguish between delinquency and default as well as between defaults resulting from either insolvency or illiquidity.
Keywords
Cite
@article{arxiv.1801.02091,
title = {Dynamic Clearing and Contagion in Financial Networks},
author = {Tathagata Banerjee and Alex Bernstein and Zachary Feinstein},
journal= {arXiv preprint arXiv:1801.02091},
year = {2024}
}