  In this paper we study the implications of contingent payments on the
clearing wealth in a network model of financial contagion. We consider an
extension of the Eisenberg-Noe financial contagion model in which the nominal
interbank obligations depend on the wealth of the firms in the network. We
first consider the problem in a static framework and develop conditions for
existence and uniqueness of solutions as long as no firm is speculating on the
failure of other firms. In order to achieve existence and uniqueness under more
general conditions, we introduce a dynamic framework. We demonstrate how this
dynamic framework can be applied to problems that were ill-defined in the
static framework.
