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Financial Contagion and Asset Liquidation Strategies

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  • Zachary Feinstein

Abstract

This paper provides a framework for modeling the financial system with multiple illiquid assets during a crisis. This work generalizes the paper by Amini, Filipovic and Minca (2016) by allowing for differing liquidation strategies. The main result is a proof of sufficient conditions for the existence of an equilibrium liquidation strategy with corresponding unique clearing payments and liquidation prices. An algorithm for computing the maximal clearing payments and prices is provided.

Suggested Citation

  • Zachary Feinstein, 2015. "Financial Contagion and Asset Liquidation Strategies," Papers 1506.00937, arXiv.org, revised Nov 2016.
    • Handle: RePEc:arx:papers:1506.00937
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    References listed on IDEAS

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    1. Chen Zhou, 2010. "Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 205-250, December.
    2. Rama Cont & Lakshithe Wagalath, 2012. "Fire Sales Forensics: Measuring Endogenous Risk," Working Papers hal-00697224, HAL.
    3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    4. Sundaram,Rangarajan K., 1996. "A First Course in Optimization Theory," Cambridge Books, Cambridge University Press, number 9780521497190.
    5. Sundaram,Rangarajan K., 1996. "A First Course in Optimization Theory," Cambridge Books, Cambridge University Press, number 9780521497701.
    6. Rama Cont & Amal Moussa & Edson B Santos, 2013. "Network structure and systemic risk in banking systems," Post-Print hal-00912018, HAL.
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    Cited by:

    1. E. Kromer & L. Overbeck & K. Zilch, 2016. "Systemic risk measures on general measurable spaces," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 84(2), pages 323-357, October.

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