We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors. The price of a CDS option can be uniformly approximated by...

We study a financial network where forced liquidations of an illiquid asset have a negative impact on its price, thus reinforcing network contagion. We give conditions for uniqueness of the clearing asset price and liability payments. Our main result holds under mild and natural assumptions on...

We examine the effects on a financial network of clearing all contracts though a central node (CN) thereby transforming the original network into a star-shaped one. The CN is capitalized with external equity and a guaranty fund. We introduce a structural systemic risk measure that captures the...