Systemic Risk and Interbank Lending
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arXiv
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| Format: | Preprint |
| Veröffentlicht: |
2016
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| _version_ | 1866910243388129280 |
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| author | Sun, Li-Hsien |
| author_facet | Sun, Li-Hsien |
| contents | We propose a simple model of the banking system incorporating a game feature where the evolution of monetary reserve is modeled as a system of coupled Feller diffusions. The Markov Nash equilibrium generated through minimizing the linear quadratic cost subject to Cox-Ingersoll-Ross type processes creates liquidity and deposit rate. The adding liquidity leads to a flocking effect but the deposit rate diminishes the growth rate of the total monetary reserve causing a large number of bank defaults. In addition, the corresponding Mean Field Game and the infinite time horizon stochastic game with the discount factor are also discussed. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_1611_06672 |
| institution | arXiv |
| publishDate | 2016 |
| record_format | arxiv |
| spellingShingle | Systemic Risk and Interbank Lending Sun, Li-Hsien Mathematical Finance We propose a simple model of the banking system incorporating a game feature where the evolution of monetary reserve is modeled as a system of coupled Feller diffusions. The Markov Nash equilibrium generated through minimizing the linear quadratic cost subject to Cox-Ingersoll-Ross type processes creates liquidity and deposit rate. The adding liquidity leads to a flocking effect but the deposit rate diminishes the growth rate of the total monetary reserve causing a large number of bank defaults. In addition, the corresponding Mean Field Game and the infinite time horizon stochastic game with the discount factor are also discussed. |
| title | Systemic Risk and Interbank Lending |
| topic | Mathematical Finance |
| url | https://arxiv.org/abs/1611.06672 |