Uniqueness of Equilibrium in a Payment System with Liquidation Costs

Hamed Amini, Damir Filipovic and Andreea Minca
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Hamed Amini: EPFL
Damir Filipovic: EPFL and Swiss Finance Institute
Andreea Minca: Cornell University

No 15-20, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study a financial network where forced liquidations of an illiquid asset have a negative impact on its price, thus reinforcing network contagion. We give conditions for uniqueness of the clearing asset price and liability payments. Our main result holds under mild and natural assumptions on the price impact function: monotonicity of the price impact function and strict monotonicity of the proceeds of liquidation in the liquidated quantity.

Keywords: Financial Network; Systemic Risk; Eiseberg Noe Model; Asset Price Contagion (search for similar items in EconPapers)
Pages: 11 pages
Date: 2015-06, Revised 2015-07
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1520

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