Uniqueness of Equilibrium in a Payment System with Liquidation Costs
Operations Research Letters, Forthcoming
11 Pages Posted: 18 Jun 2015 Last revised: 18 Jan 2016
Date Written: October 22, 2015
We study a financial network where forced liquidations of an illiquid asset have a negative impact on its price, thus reinforcing network contagion. We give conditions for uniqueness of the clearing asset price and liability payments. Our main result holds under mild and natural assumptions on the price impact function: monotonicity of the price impact function and strict monotonicity of the proceeds of liquidation in the liquidated quantity.
Keywords: Financial Network, Systemic Risk, Eiseberg Noe Model, Asset Price Contagion
JEL Classification: C44, C54, C62, G01, G18, G32
Suggested Citation: Suggested Citation