2018/01/06 by Banerjee, Tathagata, Bernstein, Alex, Feinstein, Zachary
#FOS: Economics and business #Mathematical Finance (q-fin.MF) #Risk Management (q-fin.RM)
paper · doi:10.48550/arxiv.1801.02091
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash account and long-term capital account to more accurately model the health of a financial institution. In doing so, such a system allows us to distinguish between delinquency and default as well as between defaults resulting from either insolvency or illiquidity.