Defaulting Firms and Systemic Risks in Financial Networks

28 Pages Posted: 5 Feb 2016

See all articles by Nicolas Houy

Nicolas Houy

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Frédéric Jouneau-Sion

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: February 4, 2016

Abstract

In this paper, we use the axioms introduced in Eisenberg and Noe (2001) and Rogers and Veraart (2013) and study their consequences in terms of optimal sets of defaulting firms. We show that, from this point of view, the Absolute Priority axiom is not independent. We also show that the optimal sets of defaulting firms characterized in Eisenberg and Noe (2001) are still optimal when the Limited Payment axiom, implicit in Eisenberg and Noe (2001), is further removed. However, some other optimal sets of defaulting firms appear in this case. Finally, with the help of counterexamples, we show that no further weakening in the set of axioms considered can lead to positive results.

Keywords: Credit Risks, Systemic Risks, Clearing Systems, Financial System

JEL Classification: G21, G32, G33

Suggested Citation

Houy, Nicolas and Jouneau-Sion, Frédéric, Defaulting Firms and Systemic Risks in Financial Networks (February 4, 2016). Available at SSRN: https://ssrn.com/abstract=2727693 or http://dx.doi.org/10.2139/ssrn.2727693

Nicolas Houy (Contact Author)

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Frédéric Jouneau-Sion

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
47
Abstract Views
416
PlumX Metrics