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Dynamic clearing and contagion in financial networks

Author

Listed:
  • Banerjee, Tathagata
  • Bernstein, Alex
  • Feinstein, Zachary

Abstract

In this paper we introduce a generalized extension of the Eisenberg–Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash account and long-term capital account to more accurately model the health of a financial institution. In doing so, such a system allows us to distinguish between delinquency and default as well as between defaults resulting from either insolvency or illiquidity.

Suggested Citation

  • Banerjee, Tathagata & Bernstein, Alex & Feinstein, Zachary, 2025. "Dynamic clearing and contagion in financial networks," European Journal of Operational Research, Elsevier, vol. 321(2), pages 664-675.
    • Handle: RePEc:eee:ejores:v:321:y:2025:i:2:p:664-675
    DOI: 10.1016/j.ejor.2024.09.046
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