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An investigation of the consequences of Basel III using an agent-based model

de Faria, Luís Gonçalves and Phelps, Steve (2012) An investigation of the consequences of Basel III using an agent-based model. In: Proceedings of the 13th International Conference on Electronic Commerce.

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Abstract

Many recent agent-based models of financial markets are single-asset models which do not consider risk-management strategies in which agents can invest in both riskless and risky assets. This makes them unsuitable for exploring the implications of regulatory proposals such as Basel III which require agents to balance their exposure to risk by maintaining a minimum ratio of capital to risk-weighted assets. In this paper, we will introduce an agent-based model of a financial market in which agents can invest in both risky and riskless assets. We will first validate our model against the empirically-observed stylized facts of financial time-series data and then we proceed to investigate the counter-factual implications of the Basel III proposals for systemic risk. We will also use our model to make testable predictions about the consequences of Basel III which we shall revisit if and when the regulation is implemented.

Item Type: Conference or Workshop Item (Paper)
Subjects: Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Divisions: Faculty of Science and Health > Computer Science and Electronic Engineering, School of > Centre for Computational Finance and Economic Agents
Depositing User: Jim Jamieson
Date Deposited: 10 Jun 2014 13:38
Last Modified: 10 Jun 2014 13:38
URI: http://repository.essex.ac.uk/id/eprint/9693

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