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

Listed author(s):
  • Giulia Iori
  • Rosario N. Mantegna
  • Luca Marotta
  • Salvatore Micciche'
  • James Porter
  • Michele Tumminello

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.

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File URL: http://arxiv.org/pdf/1403.3638
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Paper provided by arXiv.org in its series Papers with number 1403.3638.

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Date of creation: Mar 2014
Handle: RePEc:arx:papers:1403.3638
Contact details of provider: Web page: http://arxiv.org/

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