We examine the effects on a financial network of multilateral clearing via a central clearing counterparty (CCP) from an ex ante and ex post perspective. The CCP is capitalized with equity and a guarantee fund and it can charge a volume-based fee. We propose a CCP design which improves aggregate...

We study a financial network where forced liquidations of an illiquid asset have a negative impact on its price, thus reinforcing network contagion. We give conditions for uniqueness of the clearing asset price and liability payments. Our main result holds under mild and natural assumptions on...

We show that partial versus full multilateral netting of interbank liabilities increases bank shortfall, and reduces clearing asset price and aggregate bank surplus. We also show that partial multilateral netting can be worse than no netting at all

We propose a framework for stress testing the resilience of a financial network to external shocks affecting balance sheets. Whereas previous studies of contagion effects in financial networks have relied on large scale simulations, our approach uses a simple analytical criterion for resilience...

Propagation of insolvencies across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in a large financial network and give an analytical expression for the asymptotic...

We study optimal equity infusions into a financial system represented as a hierarchical network with two classes of banks, prone to both the risk of insolvencies and the risk of runs by short term creditors. The government seeks to minimize, under budget constraints, the magnitude of the total...

We consider a stylized core-periphery financial network in which links lead to the creation of projects in the outside economy but make banks prone to contagion risk. The controller seeks to maximize, under budget constraints, the value of the financial system defined as the total amount of...