Fire Sales, Default Cascades and Complex Financial Networks

We present a general tractable framework for understanding the joint impact of fire sales and default cascades on systemic risk in complex financial networks. Our limit theorems quantify how price mediated contagion across institutions with common asset holding could worsen insolvencies heterogeneous network, during crisis. For given prices illiquid assets, we show that, under some regularity assumptions, cascade model be transferred to death process problem represented by balls-and-bins model. inverse demand function. state various regarding total sold shares equilibrium assets stylized In particular, that has asymptotically Gaussian fluctuations. numerical studies investigate effect heterogeneity network structure function final size loss.