Networked relationships in the e-MID Interbank market: A trading model with memory

Giulia Iori, Rosario Mantegna, Luca Marotta, Salvatore Micciche', James Porter and Michele Tumminello

Papers from arXiv.org

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.

Date: 2014-03
New Economics Papers: this item is included in nep-ban and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in JEDC, 50, 98-116, (2015)

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Journal Article: Networked relationships in the e-MID interbank market: A trading model with memory (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1403.3638

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