Fractional Claims Trades and Donations in Financial Networks

Exploring measures to improve financial networks and mitigate systemic risks is an ongoing challenge. We study claims trading, a notion defined in Chapter 11 of the U.S. Bankruptcy Code. For a bank $v$ in distress and a trading partner $w$, the latter is taking over some claims of $v$ and in return giving liquidity to $v$. The idea is to rescue $v$ (or mitigate contagion effects from $v$'s insolvency). We focus on the impact of trading claims fractionally, when $v$ and $w$ can agree to trade onl...