Networked relationships in the e-MID interbank market: a trading model with memory
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Publication:1623966
DOI10.1016/J.JEDC.2014.08.016zbMATH Open1402.91953arXiv1403.3638OpenAlexW2138856702MaRDI QIDQ1623966FDOQ1623966
Authors: Y. Aharonov 
Publication date: 15 November 2018
Published in: Journal of Economic Dynamics and Control (Search for Journal in Brave)
Abstract: Interbank markets are fundamental for bank liquidity management. In this paper, we introduce a model of interbank trading with memory. Our model reproduces features of preferential trading patterns in the e-MID market recently empirically observed through the method of statistically validated networks. The memory mechanism is used to introduce a proxy of trust in the model. The key idea is that a lender, having lent many times to a borrower in the past, is more likely to lend to that borrower again in the future than to other borrowers, with which the lender has never (or has in- frequently) interacted. The core of the model depends on only one parameter representing the initial attractiveness of all the banks as borrowers. Model outcomes and real data are compared through a variety of measures that describe the structure and properties of trading networks, including number of statistically validated links, bidirectional links, and 3-motifs. Refinements of the pairing method are also proposed, in order to capture finite memory and reciprocity in the model. The model is implemented within the Mason framework in Java.
Full work available at URL: https://arxiv.org/abs/1403.3638
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Cited In (13)
- The impacts of interest rates on banks' loan portfolio risk-taking
- Interactions between monetary and macroprudential policies
- Modelling trading networks and the role of trust
- The role of bank relationships in the interbank market
- Intermediaries' substitutability and financial network resilience: a hyperstructure approach
- Reconstructing and stress testing credit networks
- Constructing banking networks under decreasing costs of link formation
- Systemic risk contagion in reconstructed financial credit network within banking and firm sectors on DebtRank based model
- Double-layer network model of bank-enterprise counterparty credit risk contagion
- Quantifying preferential trading in the e-MID interbank market
- A statistical test of Walrasian equilibrium by means of complex networks theory
- A dynamic network model with persistent links and node-specific latent variables, with an application to the interbank market
- Disentangling bipartite and core-periphery structure in financial networks
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