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Finding Clearing Payments in Financial Networks with Credit Default Swaps is PPAD-complete Schuldenzucker, Steffen Seuken, Sven Battiston, Stefano Financial Networks Credit Default Swaps Clearing Systems Arithmetic Circuits PPAD We consider the problem of clearing a system of interconnected banks that have been exposed to a shock on their assets. Eisenberg and Noe (2001) showed that when banks can only enter into simple debt contracts with each other, then a clearing vector of payments can be computed in polynomial time. In this paper, we show that the situation changes radically when banks can also enter into credit default swaps (CDSs), i.e., financial derivative contracts that depend on the default of another bank. We prove that computing an approximate solution to the clearing problem with sufficiently small constant error is PPAD-complete. To do this, we demonstrate how financial networks with debt and CDSs can encode arithmetic operations such as addition and multiplication. Our results have practical impact for network stress tests and reveal computational complexity as a new concern regarding the stability of the financial system. Schloss Dagstuhl – Leibniz-Zentrum für Informatik Steffen Schuldenzucker and Sven Seuken and Stefano Battiston 2017 Is Part Of LIPIcs, Volume 67, 8th Innovations in Theoretical Computer Science Conference (ITCS 2017) InProceedings Text doc-type:ResearchArticle publishedVersion application/pdf doi:10.4230/LIPIcs.ITCS.2017.32 urn:nbn:de:0030-drops-81558 https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.ITCS.2017.32 eng https://creativecommons.org/licenses/by/3.0/legalcode