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| Main Author: | |
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| Format: | Preprint |
| Published: |
2016
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/1611.06672 |
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Table of 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.