Uniqueness of Equilibrium in a Payment System with Liquidation Costs

Operations Research Letters, Forthcoming

Swiss Finance Institute Research Paper No. 15-20

11 Pages Posted: 18 Jun 2015 Last revised: 18 Jan 2016

See all articles by Hamed Amini

Hamed Amini

J. Mack Robinson College of Business

Damir Filipović

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Andreea Minca

Cornell University

Date Written: October 22, 2015

Abstract

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

Amini, Hamed and Filipovic, Damir and Minca, Andreea, Uniqueness of Equilibrium in a Payment System with Liquidation Costs (October 22, 2015). Operations Research Letters, Forthcoming; Swiss Finance Institute Research Paper No. 15-20. Available at SSRN: https://ssrn.com/abstract=2619512 or http://dx.doi.org/10.2139/ssrn.2619512

Hamed Amini

J. Mack Robinson College of Business ( email )

Georgia State University
35 Broad Street
Atlanta, GA 30303
United States

Damir Filipovic

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

HOME PAGE: http://people.epfl.ch/damir.filipovic

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Andreea Minca (Contact Author)

Cornell University ( email )

222 Rhodes Hall
Ithaca, NY NY 14853
United States

HOME PAGE: http://people.orie.cornell.edu/acm299/

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