Improved Hardness Results for the Clearing Problem in Financial Networks with Credit Default Swaps
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| Format: | Preprint |
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2024
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| _version_ | 1866917788696707072 |
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| author | Dohn, Simon Hansen, Kristoffer Arnsfelt Klinkby, Asger |
| author_facet | Dohn, Simon Hansen, Kristoffer Arnsfelt Klinkby, Asger |
| contents | We study computational problems in financial networks of banks connected by debt contracts and credit default swaps (CDSs). A main problem is to determine \emph{clearing} payments, for instance right after some banks have been exposed to a financial shock. Previous works have shown the $\varepsilon$-approximate version of the problem to be $\mathrm{PPAD}$-complete and the exact problem $\mathrm{FIXP}$-complete. We show that $\mathrm{PPAD}$-hardness hold when $\varepsilon \approx 0.101$, improving the previously best bound significantly. Due to the fact that the clearing problem typically does not have a unique solution, or that it may not have a solution at all in the presence of default costs, several natural decision problems are also of great interest. We show two such problems to be $\exists\mathbb{R}$-complete, complementing previous $\mathrm{NP}$-hardness results for the approximate setting. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2409_18717 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Improved Hardness Results for the Clearing Problem in Financial Networks with Credit Default Swaps Dohn, Simon Hansen, Kristoffer Arnsfelt Klinkby, Asger Computer Science and Game Theory Risk Management We study computational problems in financial networks of banks connected by debt contracts and credit default swaps (CDSs). A main problem is to determine \emph{clearing} payments, for instance right after some banks have been exposed to a financial shock. Previous works have shown the $\varepsilon$-approximate version of the problem to be $\mathrm{PPAD}$-complete and the exact problem $\mathrm{FIXP}$-complete. We show that $\mathrm{PPAD}$-hardness hold when $\varepsilon \approx 0.101$, improving the previously best bound significantly. Due to the fact that the clearing problem typically does not have a unique solution, or that it may not have a solution at all in the presence of default costs, several natural decision problems are also of great interest. We show two such problems to be $\exists\mathbb{R}$-complete, complementing previous $\mathrm{NP}$-hardness results for the approximate setting. |
| title | Improved Hardness Results for the Clearing Problem in Financial Networks with Credit Default Swaps |
| topic | Computer Science and Game Theory Risk Management |
| url | https://arxiv.org/abs/2409.18717 |