Authors: Andreea Minca, Cornell University; Hamed Amini, Georgia State University
Clearinghouses have been mandated as de facto central nodes in financial networks. Other services aim at solving various network problems such as reducing cycles. All these services face complex challenges, ranging from the direct effect on the network topology to the indirect effects on asset prices and on the end users. In this tutorial, we offer an introduction to the quantitative modeling of clearing systems. We analyze joint equilibria for the network payments and the asset prices. We raise two main points that have received less attention in the literature. The first point is that an equilibrium price for the asset prices may not be achieved in a general payment network. The second point is that portfolio compression and clearinghouses modify the seniority structure in the network, and end users that are not part of multilateral clearing arrangements become junior.