Defaulting firms and systemic risks in financial networks

Nicolas Houy and Frédéric Jouneau ()
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Frédéric Jouneau: Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France

No 1606, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In this paper, we use the axioms introduced in Eisenberg and Noe (2001) and Rogers and Veraart (2013) and study their consequences in terms of optimal sets of defaulting firms. We show that, from this point of view, the Absolute Priority axiom is not independent. We also show that the optimal sets of defaulting firms characterized in Eisenberg and Noe (2001) are still optimal when the Limited Payment axiom, implicit in Eisenberg and Noe (2001), is further removed. However, some other optimal sets of defaulting firms appear in this case. Finally, with the help of counterexamples, we show that no further weakening in the set of axioms considered can lead to positive results.

Keywords: Credit Risks; Systemic Risks; Clearing Systems; Financial System (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn
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ftp://ftp.gate.cnrs.fr/RePEc/2016/1606.pdf (application/pdf)

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Working Paper: Defaulting firms and systemic risks in financial networks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1606

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