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Networked Relationships in the e-MID Interbank Market: A Trading Model with Memory

37 Pages Posted: 14 Mar 2014  

Giulia Iori

City University London - Department of Economics

Rosario N. Mantegna

University of Palermo

Luca Marotta

University of Palermo

Salvatore Miccichè

University of Palermo - Department of Physics and Chemistry

James Porter

City University London

Michele Tumminello

University of Palermo; Carnegie Mellon University - Department of Social and Decision Sciences

Date Written: March 14, 2014

Abstract

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.

Suggested Citation

Iori, Giulia and Mantegna, Rosario N. and Marotta, Luca and Miccichè, Salvatore and Porter, James and Tumminello, Michele, Networked Relationships in the e-MID Interbank Market: A Trading Model with Memory (March 14, 2014). Available at SSRN: https://ssrn.com/abstract=2408952 or http://dx.doi.org/10.2139/ssrn.2408952

Giulia Iori

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Rosario Nunzio Mantegna

University of Palermo ( email )

Dipartimento di Fisica
Viale delle Scienze, Edificio 18
Palermo, PA I-90128
Italy
+3909123899074 (Phone)
+3909123860815 (Fax)

HOME PAGE: http://ocs.unipa.it/Site/Rosario_Nunzio_Mantegna.html

Luca Marotta

University of Palermo ( email )

Viale delle Scienza
Palermo, Buenos Aires 90128
Italy

Salvatore Miccichè (Contact Author)

University of Palermo - Department of Physics and Chemistry ( email )

Viale delle Scienze, Ed. 17
Palermo, PA 90128
Italy
+3909123899145 (Phone)

HOME PAGE: http://www.unipa.it/~salvatore.micciche

James Porter

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Michele Tumminello

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

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