Sehr geehrte Damen und Herren!

Hiermit übermitteln wir Ihnen die Einladung zu einem VOSTA-Freitagsseminar von Sven Seuken und Steffen Schuldenzucker, University of Zurich, mit dem Titel “Clearing Payments in Financial Networks with Credit Default Swaps”

Termin

Freitag, 21.10.2016, 11.00 Uhr

Ort 

Geldzentrum der Oesterreichische Nationalbank (OeNB II)

Garnisongasse 15, 1090 Wien

Veranstaltungssaal, 3. Stock

Abstract:

We consider the problem of clearing a system of interconnected banks that have been exposed to a shock on their assets. Eisenberg and Noe (2001) showed that when banks can only enter into simple debt contracts with each other, then a clearing vector of payments can be computed in polynomial time. In this paper, we show that the situation changes radically when banks can also enter into credit default swaps (CDSs), i.e., financial derivative contracts that depend on the default of another bank. We prove that computing even an approximate solution to the clearing problem with polynomial accuracy is PPAD-hard. To do this, we demonstrate how financial networks with debt and CDSs can encode arithmetic operations such as addition and multiplication.

Further analysis of our construction reveals that already determining which banks are in default is a PPAD-hard problem. This makes apparent the origin of the additional complexity introduced by CDSs: that banks may profit from the ill-being of other banks.

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Mit freundlichen Grüßen

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