Financial Contagion: Evolutionary Optimisation of a Multinational Agent-Based Model
AbstractOver the past two decades, financial market crises with similar features have occurred in different regions of the world. Unstable cross-market linkages during a crisis are referred to asfinancial contagion. We simulate crisis transmission in the context of a model of market participants adopting various strategies; this allows testing for financial contagion under alternative scenarios. Using a minority game approach, we develop an agent-based multinational model and investigate the reasons for contagion. Although the phenomenon hasbeen extensively investigated in the financial literature, it has not been studied through computational intelligence techniques. Our simulations shed light on parameter values and characteristics which can be exploited to detect contagion at an earlier stage, hence recognising financial crises with the potential to destabilise cross-market linkages. In the real world, such information would be extremely valuable in developing appropriate riskmanagement strategies.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2444.
Date of creation: 2008
Date of revision:
financial contagion; minority/majority game; agent-based model; evolutionary parameter optimisation;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
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