EVALUATING REGULATORY POLICIES FOR THE US CORPORATE BOND MARKET WITH AGENT-BASED MODELS

摘要

In this conference paper, we present some next steps in our work using agent-based modeling and simulation to better understand crisis dynamics in financial markets. In particular, the focus is on the US corporate bond market, which has increased dramatically in size and exhibits some signs of systemic risk. One specific risk is related to the growing role of open-end collective investment vehicles (such as mutual funds) in a market characterized by increasingly fragile liquidity conditions. In stressed markets, mutual funds can exhibit runlike behaviors as investors seek to redeem shares in a flight to cash. Our goal is to investigate the potential of agent-based modeling and simulation as a tool for evaluating regulatory policies aimed at reducing systemic risk. Some possible regulatory policies include minimum cash-to-asset ratios, swing pricing mechanisms, investor lock ups or gates, and alternative lending facilities. Preliminary simulation results highlight the promise of agent-based approaches.