Details for Talk on: 14.12.2015

  • Speaker: Steffen Schuldenzucker
  • Title: Consistency of bank defaults in financial networks with continuous credit default swaps
  • Abstract: We investigate financial networks consisting of both simple debt ("bonds") and credit default swap (CDS) derivative contracts. We are interested in the problem of consistency: whether there even is an answer to the question who's in default and who is not and whether that answer is unique. We showed in a first simple model that this problem is not at all trivial: inconsistency is common to occur, detecting it is NP-complete, and preventing it is not easily achieved by existing policies. We further developed a framework for dependency analysis that can help detect the "problematic spots" in a network. Our first model made an important simplification: CDSs would only depend on whether or not a default occurred while real CDSs depend continuously on the exact rate of recovery of the reference entity. In this talk, I would like to discuss with you a refined version of our model in which we can model the "continuous" variant as well as consequences for our results and presentation.