Pricing in an Eisenberg-Noe interbank system under comonotonic endowments by Zach Feinstein (Wash U St Louis)

Event Date: 

Monday, February 25, 2019 - 3:30pm to 4:30pm

Seminar by professor Zach Feinstein from WUSTL

Title: Pricing in an Eisenberg-Noe interbank system under comonotonic endowments

Abstract: In this talk we present formulas for the pricing of debt and equity of firms in a financial network under comonotonic endowments.  We demonstrate that the comonotonic setting provides a lower bound to the price of debt under Eisenberg-Noe financial networks with consistent marginal endowments.   Such financial networks encode the interconnection of firms through debt claims.  The proposed pricing formulas consider the realized, endogenous, recovery rate on debt claims.  Special consideration will be given to the setting in which firms only invest in a risk-free bond and a common risky asset following a geometric Brownian motion.