Dynamic Clearing and Contagion in Financial Networks
Alex Bernstein and
Papers from arXiv.org
In this paper we will consider a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics in both discrete and continuous time. Derivation and interpretation of the financial implications will be provided. Emphasis will be placed on the continuous-time framework and its formulation as a differential equation driven by the operating cash flows. Mathematical results on existence and uniqueness of firm wealths under the discrete and continuous-time models will be provided. Finally, the financial implications of time dynamics will be considered. The focus will be on how the dynamic clearing solutions differ from those of the static Eisenberg-Noe model.
Date: 2018-01, Revised 2018-05
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1801.02091
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