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arXiv · 1801.02091

Dynamic Clearing and Contagion in Financial Networks

Tathagata Banerjee·Alex Bernstein·Zachary Feinstein
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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.

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Tathagata Banerjee, Alex Bernstein, Zachary Feinstein. 2018-01-06. Dynamic Clearing and Contagion in Financial Networks. https://arxiv.org/abs/1801.02091

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