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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Dynamic Clearing with Liquidity Assistance in Financial Networks with Credit Default Swaps |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 62 |
| Date | 2019 |
| Abstract Text | Existing financial network clearing models can be applied on limited financial networks with credit default swaps (CDSs). Simultaneous clearing model experiences default ambiguity. Dynamic clearing model is not defined for financial networks without default costs and does not guarantee that a covered CDS holder is insured. This study presents an alternative clearing model named modified dynamic clearing model. It extends and modifies the dynamic clearing model by adding default costs and a liquidity loan provided by a central bank into the model. This study shows that in the modified dynamic clearing model, there always has a solution and a covered CDS holder is actually insured. Further, through a small-scale simulation, this study shows some common phenomenon. First, there are 2 reasons to partial repayment of liquidity loan: excessive debt liability and unforeseeable CDS liability. Second, there are 2 sources of central bank's loss: default costs and liquidity redistribution. Last, when a liquidity loan prevents at least one bank from default, it is effective for the central bank to provide a liquidity loan. |
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