Title: Dynamic Clearing and Contagion in Financial Networks,
Abstract: In this paper we will consider a generalized extension of the Eisenberg-Noe
model of financial contagion to allow for time dynamics in both discrete and
continuous time. Derivation and interpretation of the financial implications
will be provided. Emphasis will be placed on the continuous-time framework and
its formulation as a differential equation driven by the operating cash flows.
Mathematical results on existence and uniqueness of firm wealths under the
discrete and continuous-time models will be provided. Finally, the financial
implications of time dynamics will be considered. The focus will be on how the
dynamic clearing solutions differ from those of the static Eisenberg-Noe model.