2 Search Results for "Schuldenzucker, Steffen"

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DOI: 10.4230/LIPIcs.ITCS.2020.46

Strategic Payments in Financial Networks

Authors: Nils Bertschinger, Martin Hoefer, and Daniel Schmand

Published in: LIPIcs, Volume 151, 11th Innovations in Theoretical Computer Science Conference (ITCS 2020)

Abstract

In their seminal work on systemic risk in financial markets, Eisenberg and Noe [Larry Eisenberg and Thomas Noe, 2001] proposed and studied a model with n firms embedded into a network of debt relations. We analyze this model from a game-theoretic point of view. Every firm is a rational agent in a directed graph that has an incentive to allocate payments in order to clear as much of its debt as possible. Each edge is weighted and describes a liability between the firms. We consider several variants of the game that differ in the permissible payment strategies. We study the existence and computational complexity of pure Nash and strong equilibria, and we provide bounds on the (strong) prices of anarchy and stability for a natural notion of social welfare. Our results highlight the power of financial regulation - if payments of insolvent firms can be centrally assigned, a socially optimal strong equilibrium can be found in polynomial time. In contrast, worst-case strong equilibria can be a factor of Ω(n) away from optimal, and, in general, computing a best response is an NP-hard problem. For less permissible sets of strategies, we show that pure equilibria might not exist, and deciding their existence as well as computing them if they exist constitute NP-hard problems.

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Nils Bertschinger, Martin Hoefer, and Daniel Schmand. Strategic Payments in Financial Networks. In 11th Innovations in Theoretical Computer Science Conference (ITCS 2020). Leibniz International Proceedings in Informatics (LIPIcs), Volume 151, pp. 46:1-46:16, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2020)

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@InProceedings{bertschinger_et_al:LIPIcs.ITCS.2020.46,
  author =	{Bertschinger, Nils and Hoefer, Martin and Schmand, Daniel},
  title =	{{Strategic Payments in Financial Networks}},
  booktitle =	{11th Innovations in Theoretical Computer Science Conference (ITCS 2020)},
  pages =	{46:1--46:16},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-134-4},
  ISSN =	{1868-8969},
  year =	{2020},
  volume =	{151},
  editor =	{Vidick, Thomas},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.ITCS.2020.46},
  URN =		{urn:nbn:de:0030-drops-117316},
  doi =		{10.4230/LIPIcs.ITCS.2020.46},
  annote =	{Keywords: Nash Equilibrium, Financial Network, Systemic Risk, Price of Anarchy, Equilibrium Computation}
}

Document

DOI: 10.4230/LIPIcs.ITCS.2017.32

Finding Clearing Payments in Financial Networks with Credit Default Swaps is PPAD-complete

Authors: Steffen Schuldenzucker, Sven Seuken, and Stefano Battiston

Published in: LIPIcs, Volume 67, 8th Innovations in Theoretical Computer Science Conference (ITCS 2017)

Abstract

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.

Cite as

Steffen Schuldenzucker, Sven Seuken, and Stefano Battiston. Finding Clearing Payments in Financial Networks with Credit Default Swaps is PPAD-complete. In 8th Innovations in Theoretical Computer Science Conference (ITCS 2017). Leibniz International Proceedings in Informatics (LIPIcs), Volume 67, pp. 32:1-32:20, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2017)

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@InProceedings{schuldenzucker_et_al:LIPIcs.ITCS.2017.32,
  author =	{Schuldenzucker, Steffen and Seuken, Sven and Battiston, Stefano},
  title =	{{Finding Clearing Payments in Financial Networks with Credit Default Swaps is PPAD-complete}},
  booktitle =	{8th Innovations in Theoretical Computer Science Conference (ITCS 2017)},
  pages =	{32:1--32:20},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-029-3},
  ISSN =	{1868-8969},
  year =	{2017},
  volume =	{67},
  editor =	{Papadimitriou, Christos H.},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.ITCS.2017.32},
  URN =		{urn:nbn:de:0030-drops-81558},
  doi =		{10.4230/LIPIcs.ITCS.2017.32},
  annote =	{Keywords: Financial Networks, Credit Default Swaps, Clearing Systems, Arithmetic Circuits, PPAD}
}

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1 Theory of computation → Algorithmic game theory and mechanism design

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2 Search Results for "Schuldenzucker, Steffen"

Strategic Payments in Financial Networks

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Finding Clearing Payments in Financial Networks with Credit Default Swaps is PPAD-complete

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