An Axiomatic Viewpoint on the Rogers--Veraart and Suzuki--Elsinger Models of Systemic Risk

Paper: arXiv 2212.13188

Authors: Yuri Kabanov, Arthur Sidorenko

Abstract

We study a model of clearing in an interbank network with crossholdings and default charges. Following the Eisenberg–Noe approach, we define the model via a set of natural financial regulations including those related with eventual default charges and derive a finite family of fixpoint problems. These problems are parameterized by vectors of binary variables. Our model combines features of the Ararat–Meimanjanov, Rogers–Veraart, and Suzuki–Elsinger networks. We develop methods of computing the maximal and minimal clearing pairs using the mixed integer-linear programming and a Gaussian elimination algorithm.

Complexity vs Empirical Score

• Math Complexity: 8.0/10
• Empirical Rigor: 2.5/10
• Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper provides a strong theoretical and axiomatic framework for interbank network clearing with advanced fixpoint and mixed integer-linear programming formulations. However, it is predominantly a theoretical/algorithmic study with minimal empirical backtesting or real-world data application.

Research Flowchart

  flowchart TD
    A[Research Goal: Axiomatic unification of interbank network models with crossholdings & default charges] --> B[Data Inputs: Interbank liabilities, equity crossholding matrices, & default costs]
    B --> C[Axiomatic Formulation: Eisenberg-Noe approach defining clearing via financial regulations]
    C --> D[System Translation: Parameterized fixpoint problems using binary vectors]
    D --> E[Computation: Mixed Integer-Linear Programming MILP & Gaussian Elimination]
    E --> F[Outcomes: Algorithms for computing maximal and minimal clearing pairs for systemic risk assessment]