Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/256905 
Year of Publication: 
2021
Series/Report no.: 
KRTK-KTI Working Papers No. KRTK-KTI WP - 2021/34
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Centre for Economic and Regional Studies, Budapest
Abstract: 
We study bankruptcy problems in financial networks in the presence of general bankruptcy laws. The set of clearing payment matrices is shown to be a lattice, whichguarantees the existence of a greatest and a least clearing payment. Multiplicity ofclearing payment matrices is both a theoretical and a practical concern. We present a new condition for uniqueness that generalizes all the existing conditions proposed in the literature. Our condition depends on the decomposition of the financial network into strongly connected components. A strongly connected component which contains more than one agent is called a cycle and the involved agents are called cyclical agents. If there is a cycle without successors, then one of the agents in such a cycle should have a positive endowment. The division rule used by a cyclical agent with a positive endowment should be positive monotonic and the rule used by a cyclical agent with a zero endowment should be strictly monotonic. Since division rules involving priorities are not positive monotonic, uniqueness of the clearing payment matrix is a much bigger concern for such division rules than for proportional ones. We also show how uniqueness of clearing payment matrices is related to continuity of bankruptcy rules.
Subjects: 
Financial networks
systemic risk
bankruptcy rules
fixed points
JEL: 
C71
G10
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.