An optimization algorithm for the clearing of interbank payments

Shafransky, Yakov M.; Doudkin, A. A.

doi:10.1016/j.ejor.2004.09.003

Cited by 19 publications

(7 citation statements)

References 3 publications

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“…Next, we reformulate the Bank Clearing Problem [22,39] in our notation, noting it to be a special case of transaction aggregation. Let us briefly elaborate on the throughput benefits of transaction aggregation.…”

Section: (Computational) Problem Definitionmentioning

confidence: 99%

“…Although the algorithm we present in Section 4.1 enjoys the best known asymptotic complexity, other, simpler algorithms such as the pseudopolynomial time dynamic programming solution of [22] may be faster in certain parameter regimes. Moreover, although BCP has been shown to be inapproximable unless P = NP, [39] propose a fast heuristic for approximately solving it, which may also be employed here to achieve even faster implementations at the cost of optimality.…”

Section: Connection To Nettingmentioning

confidence: 99%

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Wiser: Increasing Throughput in Payment Channel Networks with Transaction Aggregation

Tiwari¹,

Michelle²,

Avarikioti³

et al. 2022

Preprint

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Payment channel networks (PCNs) are one of the most prominent solutions to the limited transaction throughput of blockchains. Nevertheless, PCNs suffer themselves from a throughput limitation due to the capital constraints of their channels. A similar dependence on high capital is also found in inter-bank payment settlements, where the so-called netting technique is used to mitigate liquidity demands. In this work, we alleviate this limitation by introducing the notion of transaction aggregation: instead of executing transactions sequentially through a PCN, we enable senders to aggregate multiple transactions and execute them simultaneously to benefit from several amounts that may "cancel out". Two direct advantages of our proposal is the decrease in intermediary fees paid by senders as well as the obfuscation of the transaction data from the intermediaries. We formulate the transaction aggregation as a computational problem, a generalization of the Bank Clearing Problem. We present a generic framework for the transaction aggregation execution, and thereafter we propose WISER as an implementation of this framework in a specific hub-based setting. To overcome the NP-hardness of the transaction aggregation problem, in WISER we propose a fixed-parameter linear algorithm for a special case of transaction aggregation as well as the Bank Clearing Problem. WISER can also be seen as a modern variant of the Hawala money transfer system, as well as a decentralized implementation of the overseas remittance service of Wise.

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Section: (Computational) Problem Definitionmentioning

confidence: 99%

Section: Connection To Nettingmentioning

confidence: 99%

Wiser: Increasing Throughput in Payment Channel Networks with Transaction Aggregation

Tiwari¹,

Michelle²,

Avarikioti³

et al. 2022

Preprint

View full text Add to dashboard Cite

show abstract

“…In [9] the NP-complete Bank Clearing Problem (BCP) was introduced as it occurred in Germany's largest interbank payment system and efficient heuristic algorithms were given to solve it. Later in [17] an approximation algorithm for the BCP was given. In the BCP the objective is to maximize the clearing volume with the restriction that the negative net balance cannot exceed a previously deposited amount for each bank.…”

Section: Introductionmentioning

confidence: 99%

Evolutionary solving of the debts’ clearing problem

Păatcaş

Bartha

2019

Acta Universitatis Sapientiae, Informatica

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The debts' clearing problem is about clearing all the debts in a group of n entities (persons, companies etc.) using a minimal number of money transaction operations. The problem is known to be NP-hard in the strong sense. As for many intractable problems, techniques from the field of artificial intelligence are useful in finding solutions close to optimum for large inputs. An evolutionary algorithm for solving the debts' clearing problem is proposed.

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“…They proved that there is no polynomialtime solvable approximation algorithm unless P = NP. Shafransky and Doudkin [18] relaxed one restriction of the BCP to make it a linear programming problem, which enables payments to be split. Some payment systems allow for such paymentsplitting, such as the Swiss Interbank Clearing Payment System.…”

mentioning

confidence: 99%

An online-decision algorithm for the multi-period bank clearing problem

Chen¹

2022

JIMO

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<p style='text-indent:20px;'>The bank clearing problem (BCP) refers to the problem of designing an optimal clearing algorithm for the interbank payment system. Due to the way in which for the payment system has evolved, the classical BCP model is insufficient for addressing this problem accurately. In particular, delayed settlements are allowed in the now popular high-frequency deferred net settlement (DNS) system. In practice, the characteristics of incoming payment instructions are heavily connected to the time of day, and can be predicted with reasonable precision based on historical data. In this paper, we study the multi-period bank clearing problem (MBCP) by introducing the time dimension and considering future instructions in the decision-making process. We design a new clearing algorithm for MBCP using a model predictive control (MPC) policy, which uses historical data to predict payment instructions in the future. We benchmark the designed algorithm's performance with the classical greedy algorithm on the basis of BCP. Given that the liquidity is regular or relatively low, the numerical results indicate that the designed algorithm significantly improves the quality of clearing decision-making and is robust with respect to forecasting errors and fluctuation of future transactions.</p>

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An optimization algorithm for the clearing of interbank payments

Cited by 19 publications

References 3 publications

Wiser: Increasing Throughput in Payment Channel Networks with Transaction Aggregation

Wiser: Increasing Throughput in Payment Channel Networks with Transaction Aggregation

Evolutionary solving of the debts’ clearing problem

An online-decision algorithm for the multi-period bank clearing problem

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