Bluhm, Marcel; Faia, Ester; Krahnen, Jan Pieter - 2014 - This draft: June 2014
We develop a network model whose links are governed by banks' optmizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in re-sales: risk is transmitted through direct and cascading counterparty defaults as well as through indirect...