Regulatory Management of Distressed Financial Markets using Simulation

Winter Simulation Conference Proceedings, 2013

11 Pages Posted: 21 Aug 2012 Last revised: 8 Jul 2013

See all articles by Mark E. Paddrik

Mark E. Paddrik

Government of the United States of America - Office of Financial Research

Gerard Learmonth

University of Virginia - Systems Engineering

Date Written: March 18, 2013

Abstract

Government economic policy regarding the financial markets in the United States has been focused on promoting self-regulation based on a belief in natural equilibrium. This has led to decreased regulation and permitted an increase in the complexity of financial assets that has to some degree exceeded the capability of the market to understand the fundamentals of what is being traded. This lack of understanding or information about these assets’ values has created liquidity problems. This has contributed to the current crisis in both US and world markets. Through the use of an agent-based simulation model of a economic market, this paper looks at the effect of information on keeping the markets liquid and at potential strategies to protect markets from illiquidity failure. It considers how the three main government con-trolled market influences: interest rate targeting, ‘information’ regulation, and market making can affect market stability.

Suggested Citation

Paddrik, Mark Endel and Learmonth, Gerard, Regulatory Management of Distressed Financial Markets using Simulation (March 18, 2013). Winter Simulation Conference Proceedings, 2013, Available at SSRN: https://ssrn.com/abstract=2132483 or http://dx.doi.org/10.2139/ssrn.2132483

Mark Endel Paddrik (Contact Author)

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Gerard Learmonth

University of Virginia - Systems Engineering ( email )

United States

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