Optimization of Fire Sales and Borrowing in Systemic Risk

9 Pages Posted: 23 Feb 2018

See all articles by Maxim Bichuch

Maxim Bichuch

University at Buffalo, SUNY

Zachary Feinstein

Stevens Institute of Technology - School of Business

Date Written: February 12, 2018

Abstract

This paper provides a framework for modeling financial contagion in a network subject to fire sales and price impacts, but allowing for firms to borrow to cover their shortfall as well. We consider both uncollateralized and collateralized loans. The main results of this work are providing sufficient conditions for existence and uniqueness of the clearing solutions (i.e., payments, liquidations, and borrowing); in such a setting any clearing solution is the Nash equilibrium of an aggregation game.

Keywords: Systemic Risk, Networks, Fire Sales, Borrowing, Financial Contagion

JEL Classification: G32

Suggested Citation

Bichuch, Maxim and Feinstein, Zachary, Optimization of Fire Sales and Borrowing in Systemic Risk (February 12, 2018). Available at SSRN: https://ssrn.com/abstract=3122595 or http://dx.doi.org/10.2139/ssrn.3122595

Maxim Bichuch (Contact Author)

University at Buffalo, SUNY ( email )

12 Capen Hall
Buffalo, NY 14260
United States

Zachary Feinstein

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
43
Abstract Views
462
PlumX Metrics