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An Equilibrium Model of Interbank Networks Based on Variational Inequalities

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  • Shouwei Li
  • Jianmin He

Abstract

We develop an equilibrium model of credit network and trust network in the interbank market. We consider two kinds of decision makers including banks with liquidity surplus and banks with liquidity shortage. We model the behavior of the decision makers, derive the equilibrium conditions, and establish the variational inequality formulation for interbank credit network and trust network. We then utilize the variational inequality formulation to obtain qualitative properties of the equilibrium pattern in terms of existence and uniqueness.

Suggested Citation

  • Shouwei Li & Jianmin He, 2013. "An Equilibrium Model of Interbank Networks Based on Variational Inequalities," Advances in Mathematical Physics, John Wiley & Sons, vol. 2013(1).
    • Handle: RePEc:wly:jnlamp:v:2013:y:2013:i:1:n:175232
    DOI: 10.1155/2013/175232
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    References listed on IDEAS

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