Zachary Feinstein

Title: Dynamic Network Valuation Adjustments and Systemic Term Structures

Abstract: In this talk, we introduce a dynamic Gai-Kapadia interbank network to study the yield curve of bank debt under a network valuation adjustment. Such a dynamic system requires a forward-backward approach in which the future probability of default is required to determine the present value of debt. In this way, the systemic model presented provides the network valuation adjustment to the term structure for free without additional steps required. Time permitting, we present this problem in two parts: (1) a single maturity setting that closely matches the traditional interbank network literature and (2) a multiple maturity setting to consider the full term structure.