{"title":"On priority-proportional payments in financial networks","authors":"","doi":"10.1016/j.tcs.2024.114767","DOIUrl":null,"url":null,"abstract":"<div><p>We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to banks, and directed labeled edges correspond to debt contracts between them. The existence of cycles in the network indicates that a payment of a bank to one of its lenders might affect the bank's incoming payments. So, if a bank cannot fully repay its debt, then the exact payments it makes to each of its lenders can affect the cash inflow back to itself. We naturally assume that the banks 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 banks, that can be seen as utility-maximizing agents who strategize over their payments.</p><p>We introduce a class of financial network games that arise under some natural payment strategies called priority-proportional payments. We compute valid payment profiles for fixed payment strategies and we investigate existence and (in)efficiency of equilibrium strategies, under different variations of the game that capture several financial aspects that commonly arise in practice. We conclude with examining the computational complexity of a variety of related problems.</p></div>","PeriodicalId":49438,"journal":{"name":"Theoretical Computer Science","volume":null,"pages":null},"PeriodicalIF":0.9000,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Theoretical Computer Science","FirstCategoryId":"94","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0304397524003840","RegionNum":4,"RegionCategory":"计算机科学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"COMPUTER SCIENCE, THEORY & METHODS","Score":null,"Total":0}
引用次数: 0
Abstract
We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to banks, and directed labeled edges correspond to debt contracts between them. The existence of cycles in the network indicates that a payment of a bank to one of its lenders might affect the bank's incoming payments. So, if a bank cannot fully repay its debt, then the exact payments it makes to each of its lenders can affect the cash inflow back to itself. We naturally assume that the banks 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 banks, that can be seen as utility-maximizing agents who strategize over their payments.
We introduce a class of financial network games that arise under some natural payment strategies called priority-proportional payments. We compute valid payment profiles for fixed payment strategies and we investigate existence and (in)efficiency of equilibrium strategies, under different variations of the game that capture several financial aspects that commonly arise in practice. We conclude with examining the computational complexity of a variety of related problems.
期刊介绍:
Theoretical Computer Science is mathematical and abstract in spirit, but it derives its motivation from practical and everyday computation. Its aim is to understand the nature of computation and, as a consequence of this understanding, provide more efficient methodologies. All papers introducing or studying mathematical, logic and formal concepts and methods are welcome, provided that their motivation is clearly drawn from the field of computing.