Dynamic clearing and contagion in financial networks

Tathagata Banerjee, Alex Bernstein and Zachary Feinstein

European Journal of Operational Research, 2025, vol. 321, issue 2, 664-675

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: Finance; Systemic risk; Financial contagion; Dynamic network; Early defaults (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:321:y:2025:i:2:p:664-675

DOI: 10.1016/j.ejor.2024.09.046

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