A Note on Uniqueness of Clearing Prices in Financial Systems

16 Pages Posted: 30 Jul 2019

See all articles by Maurice Koster

Maurice Koster

Amsterdam School of Economics, University of Amsterdam

Date Written: July 26, 2019

Abstract

The Eisenberg and Noe (2001) model of the financial system is generalized to the case where default is solved by means of a bankruptcy rule. For regular financial networks a unique vector of clearing prices exists if only the bankruptcy rule is strongly monotonic. This shows uniqueness of the clearing prices on regular financial networks for the class of equal sacrifice rules by Young (1988), and many variations of the proportional rule as in Csóka and Herings (2018). This paper disentangles the role of network topology from the way defaults are solved.

Keywords: Financial networks, Systemic risk, Contagion, Clearing algorithm, Rationing, Proportional Rule, Constrained Equal Award Rule

JEL Classification: C79, D31, D81, M41

Suggested Citation

Koster, Maurice, A Note on Uniqueness of Clearing Prices in Financial Systems (July 26, 2019). Available at SSRN: https://ssrn.com/abstract=3427039 or http://dx.doi.org/10.2139/ssrn.3427039

Maurice Koster (Contact Author)

Amsterdam School of Economics, University of Amsterdam ( email )

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Amsterdam, 1018 WB
Netherlands
+31 205254226 (Phone)

HOME PAGE: http://www.uva.nl/profiel/k/o/m.a.l.koster/m.a.l.koster.html

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