Related papers: Optimal Bailouts and Strategic Debt Forgiveness in…

We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to firms, and directed labeled edges correspond to debt contracts between them. The existence of cycles in…

We consider networks of banks with assets and liabilities. Some banks may be insolvent, and a central bank can decide which insolvent banks, if any, to bail out. We view bailouts as an optimization problem where the central bank has given…

The events of the last few years revealed an acute need for tools to systematically model and analyze large financial networks. Many applications of such tools include the forecasting of systemic failures and analyzing probable effects of…

We define and study a lending game to model the interbank money market, in which lending banks strategically allocate their cash to borrowing banks. The interest rate offered by each borrowing bank is within the interest rate corridor set…

We analyze how interdependencies between organizations in financial networks can lead to multiple possible equilibrium outcomes. A multiplicity arises if and only if there exists a certain type of dependency cycle in the network that allows…

We study financial networks with debt contracts and credit default swaps between specific pairs of banks. Given such a financial system, we want to decide which of the banks are in default, and how much of their liabilities can these…

We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…

We study a game-theoretic variant of the maximum circulation problem. In a flow allocation game, we are given a directed flow network. Each node is a rational agent and can strategically allocate any incoming flow to the outgoing edges.…

Widespread default involves substantial deadweight costs which could be countered by injecting capital into failing firms. Injections have positive spillovers that can trigger a repayment cascade. But which firms should a regulator bailout…

Financial network games model payment incentives in the context of networked liabilities. In this paper, we advance the understanding of incentives in financial networks in two important directions: minimal clearing (arising, e.g., as a…

This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the…

Financial networks are characterized by complex structures of mutual obligations. These obligations are fulfilled entirely or in part (when defaults occur) via a mechanism called clearing, which determines a set of payments that settle the…

We study the problem of allocating bailouts (stimulus, subsidy allocations) to people participating in a financial network subject to income shocks. We build on the financial clearing framework of Eisenberg and Noe that allows the…

The recent banking crisis has again emphasized the importance of understanding and mitigating systemic risk in financial networks. In this paper, we study a market-driven approach to rescue a bank in distress based on the idea of claims…

Many real-world systems are composed of interdependent networks that rely on one another. Such networks are typically designed and operated by different entities, who aim at maximizing their own payoffs. There exists a game among these…

A debt swap is an elementary edge swap in a directed, weighted graph, where two edges with the same weight swap their targets. Debt swaps are a natural and appealing operation in financial networks, in which nodes are banks and edges…

This paper proposes a novel dynamical model for determining clearing payments in financial networks. We extend the classical Eisenberg-Noe model of financial contagion to multiple time periods, allowing financial operations to continue…

In the financial system, bailout strategies play a pivotal role in mitigating substantial losses resulting from systemic risk. However, the lack of a closed-form objective function to the optimal bailout problem poses significant challenges…

The network-based study of financial systems has received considerable attention in recent years but has seldom explicitly incorporated the dynamic aspects of such systems. We consider this problem setting from the temporal point of view…

We propose a simple model of inter-bank borrowing and lending where the evolution of the log-monetary reserves of $N$ banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the…