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 after possible initial pseudo defaults, thus permitting nodes to recover and eventually fulfil their liabilities. Optimal clearing payments in our model are computed by solving a suitable linear program, both in the full matrix payments case and in the pro-rata constrained case. We prove that the proposed model obeys the priority of debt claims requirement, that is, each node at every step either pays its liabilities in full, or it pays out all its balance. In the pro-rata case, the optimal dynamic clearing payments are unique, and can be determined via a time-decoupled sequential optimization approach.

Clearing Payments in Dynamic Financial Networks / Calafiore, Giuseppe; Fracastoro, Giulia; Proskurnikov, Anton V.. - ELETTRONICO. - (2022), pp. 1123-1128. (Intervento presentato al convegno 2022 IEEE Conference on Control Technology and Applications (CCTA) tenutosi a Trieste nel 23-25 August 2022) [10.1109/CCTA49430.2022.9966044].

Clearing Payments in Dynamic Financial Networks

Calafiore, Giuseppe;Fracastoro, Giulia;Proskurnikov, Anton V.
2022

Abstract

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 after possible initial pseudo defaults, thus permitting nodes to recover and eventually fulfil their liabilities. Optimal clearing payments in our model are computed by solving a suitable linear program, both in the full matrix payments case and in the pro-rata constrained case. We prove that the proposed model obeys the priority of debt claims requirement, that is, each node at every step either pays its liabilities in full, or it pays out all its balance. In the pro-rata case, the optimal dynamic clearing payments are unique, and can be determined via a time-decoupled sequential optimization approach.
2022
978-1-6654-7338-5
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11583/2973710