Isaac Sonin, UNC Charlotte

*Title: *A Continuous-Time Model of Financial Clearing Part 2

*Abstract: *We present a simple model of clearing in financial
networks in continuous time. In the model, banks (firms, agents) are
represented as tanks (reservoirs) with liquid (money) flowing in and
out. This approach provides a simple recursive solution to a classical
static model of financial clearing introduced by Eisenberg and Noe
(2001). It also suggests a practical mechanism of simultaneous and real
time payments. The dynamic structure of our model helps answer other
related questions and, potentially, opens the way to handle more
complicated dynamic financial networks, e.g., liabilities with different
maturities. Also, our approach provides a useful tool for solving
nonlinear equations involving a linear system and max min operations
similar to the Bellman equation for the optimal stopping of Markov
chains and other optimization problems.