An Agent-Based Approach to Interbank Market Lending Decisions and Risk Implications
Authored by Mark Paddrik, Anqi Liu, Cheuk Yin Jeffrey Mo, Steve Y Yang
Date Published: 2018
DOI: 10.3390/info9060132
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Abstract
In this study, we examine the relationship of bank level lending and
borrowing decisions and the risk preferences on the dynamics of the
interbank lending market. We develop an agent-based model that
incorporates individual bank decisions using the temporal difference
reinforcement learning algorithm with empirical data of 6600 U.S. banks.
The model can successfully replicate the key characteristics of
interbank lending and borrowing relationships documented in the recent
literature. A key finding of this study is that risk preferences at the
individual bank level can lead to unique interbank market structures
that are suggestive of the capacity with which the market responds to
surprising shocks.
Tags
Liquidity
Multi-agent system
Systemic risk
Model
Contagion
topology
Financial networks
Interbank market
Contagion risk
Reinforcement
learning agents
Federal-funds market