Details for Talk on: 02.05.2016

  • Speaker: Steffen Schuldenzucker
  • Title: How many banks do you need to multiply two numbers?
  • Abstract: We consider the problem of clearing a system of interconnected financial institutions that have been exposed to a shock on their assets. In prior work we have shown that if banks can enter into both debt contracts and credit default swaps (CDSs) and banks incur a cost upon default, then a solution to the clearing problem may not exist and it is NP-hard to decide if it does. In our current work, we complement these results by showing that without default costs, a solution always exists, but actually computing an (approximate) solution is PPAD-hard. To show this, we demonstrate how financial networks with CDSs can express arithmetic operations such as addition and multiplication. Our result contrasts with previous work on debt-only financial networks, in which a solution can always be found in polynomial time. In this talk, I would like to discuss with you the assumptions and economic implications of my theorem as well as potential extensions. I will also provide an introduction to the PPAD complexity class.