PhiMac Seminar - Weijie Pang - Sensitivity Analysis of the Eisenberg--Noe Network Model.



Speaker: Weijie Pang (McMaster University)

Title: "Sensitivity Analysis of the Eisenberg--Noe Network Model".

Abstract: To describe financial networks, L. Eisenberg and T. Noe introduced network models that became popular among researchers and practitioners. To describe the connections between firms, they use the liabilities between two firms to construct relative liability matrices. Based on this description, they compute the payouts of firms to their counterparties. However, in practice, there is no accurate record of the liabilities and researchers have to resort to estimation processes. Thus it is very important to understand possible errors of payouts due to the estimation errors. In our research, we quantify the clearing vector's sensitivity to such estimation errors and show that its directional derivatives are, like the clearing vector itself, solutions of fixed point equations. We describe estimation errors utilizing a basis for the space of matrices representing permissible perturbations and derive analytical solutions to the maximal deviations of the Eisenberg-Noe clearing vector.
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McMaster University - Faculty of Science | Math & Stats