Research Repository

Financial network games

Kanellopoulos, Panagiotis and Kyropoulou, Maria and Zhou, Hao (2021) Financial network games. In: 2nd ACM International Conference on AI in Finance (ICAIF’21), 2021-11-03 - 2021-11-05, Virtual Event. (In Press)

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Abstract

We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes cor- respond to firms, and directed labeled edges correspond to debt contracts between them. The existence of cycles in the network indicates that a payment of a firm to one of its lenders might result to some incoming payment. So, if a firm cannot fully repay its debt, then the exact (partial) payments it makes to each of its creditors can affect the cash inflow back to itself. We naturally assume that the firms are interested in their financial well-being (utility) which is aligned with the amount of incoming payments they receive from the network. This defines a game among the firms, that can be seen as utility-maximizing agents who can strategize over their payments. We are the first to study financial network games that arise under a natural set of payment strategies called priority-proportional payments. We investigate both the existence and the (in)efficiency of equilibrium strategies, under different assumptions on how the firms’ utility is defined, on the types of debt contracts allowed between the firms, and on the presence of other financial features that commonly arise in practice. Surprisingly, even if all firms’ strategies are fixed, the existence of a unique payment profile is not guaranteed. So, we also investigate the existence and computation of valid payment profiles for fixed payment strategies.

Item Type: Conference or Workshop Item (Paper)
Additional Information: Published proceedings: _not provided_
Uncontrolled Keywords: financial networks, equilibria, price of anarchy, price of stability
Divisions: Faculty of Science and Health > Computer Science and Electronic Engineering, School of
Depositing User: Elements
Date Deposited: 04 Nov 2021 19:03
Last Modified: 04 Nov 2021 19:15
URI: http://repository.essex.ac.uk/id/eprint/31413

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