The European Physical Journal B

, Volume 73, Issue 1, pp 29–40 | Cite as

Does Basel II destabilize financial markets? An agent-based financial market perspective

Topical Issue on Interdisciplinary Applications of Physics in Economics and Finance


We use a financial market model that is able to replicate stylized facts of financial markets quite successfully. We adjust this model by integrating regulations of Basel II concerning market risk. The result is a considerable destabilization of the regulated financial market with a significant increase of extreme events (extraordinary profits and losses). Since the intention of Basel II regulations is to ensure banks have enough regulatory capital to withstand periods involving extraordinary losses, it is alarming that – on the contrary – these regulations may provoke an increase in precisely such extraordinary events.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    C. Hommes, in Handbook of Computational Economics, Agent-Based Computational Economics, edited by L. Tesfatsion, K.L. Judd (North Holland/Elsevier, Amsterdam, 2006), Vol. 2, pp. 1109–1185Google Scholar
  2. 2.
    B. LeBaron, in Handbook of Computational Economics, Agent-Based Computational Economics, edited by L. Tesfatsion, K.L. Judd (North Holland/Elsevier, Amsterdam, 2006), Vol. 2, pp. 1187–1232Google Scholar
  3. 3.
    A. Kirman, in Money and financial markets Blackwell, edited by M. Taylor (Blackwell, Oxford, 1991), pp. 354–368Google Scholar
  4. 4.
    S. Bornholdt, Int. J. Mod. Phys. C 12, 5 (2001)CrossRefGoogle Scholar
  5. 5.
    W.A. Brock, C. Hommes, J. Econ. Dyn. Cont. 22, 8 (1998)MathSciNetGoogle Scholar
  6. 6.
    S.-H. Chen, C.-H. Yeh, J. Econ. Beh. Org. 49, 2 (2002)Google Scholar
  7. 7.
    D. Farmer D, S. Joshi, J. Econ. Beh. Org. 49, 2 (2002)Google Scholar
  8. 8.
    P. de Grauwe, M. Grimaldi, Eur. Econ. Rev. 50, 1 (2006)CrossRefGoogle Scholar
  9. 9.
    B. LeBaron, B. Arthur, R. Palmer, J. Econ. Dyn. Cont. 23, 9 (1999)Google Scholar
  10. 10.
    M. Raberto, S. Cinotti, S.M. Focardi, M. Marchesi, Comput. Econ. 22, 2 (2003)CrossRefGoogle Scholar
  11. 11.
    K. Mannaro, M. Marchesi, A. Setzu, J. Econ. Beh. Org. 67, 2 (2008)Google Scholar
  12. 12.
    F. Westerhoff, R. Dieci, J. Econ. Dyn. Cont. 30, 2 (2006)MathSciNetGoogle Scholar
  13. 13.
    X.-Z. He, F. Westerhoff, J. Econ. Dyn. Cont. 29, 9 (2005)MathSciNetGoogle Scholar
  14. 14.
    F. Westerhoff, J. Int. Fin. Markets. Inst. Money 13, 5 (2003)Google Scholar
  15. 15.
    M. Crouhy, D. Galai, R. Mark, The Essentials of Risk Management (McGraw-Hill, New York, 2006)Google Scholar
  16. 16.
    BCBS, International Convergence of Capital Measurement and Capital Standards (Bank for International Settlements, June 2006)Google Scholar
  17. 17.
    J. Kerkhof, B. Melenberg, J. Banking Fin. 28, 8 (2004)Google Scholar
  18. 18.
    H. Benink, J. Daníelsson, Á. Jónsson, Fin. Markets Institutions Instruments 17, 1 (2008)CrossRefGoogle Scholar
  19. 19.
    T. Lux, M. Marchesi, Nature 397, 6719 (1999)CrossRefGoogle Scholar
  20. 20.
    T. Lux, M. Marchesi, Int. J. Theor. Appl. Fin. 3, 4 (2000)MathSciNetGoogle Scholar
  21. 21.
    W. Weidlich, G. Haag, Concepts and Models of a Quantitative Sociology — The Dynamics of Interacting Populations (Springer, Berlin, 1983)MATHGoogle Scholar
  22. 22.
    S. Alfarano, T. Lux, F. Wagner, Comput. Econ. 26, 1 (2005)CrossRefGoogle Scholar
  23. 23.
    S. Alfarano, T. Lux, Macroecon. Dyn. 11, S1 (2007)CrossRefGoogle Scholar
  24. 24.
    C. Marrison, The Fundamentals of Risk Management (McGraw-Hill, New York, 2002)Google Scholar
  25. 25.
    A. McNeil, R. Frey, P. Embrechts, Quantitative Risk Management: Concepts, Techniques, and Tools (Princeton University Press, Princeton, 2005)MATHGoogle Scholar
  26. 26.
    R.-D. Reiss, M. Thomas, Statistical Analysis of Extreme Values with Applications to Insurance, Finance, Hydrology and Other Fields, 3rd edn. (Birkhäuser, Boston, 2007)MATHGoogle Scholar
  27. 27.
    G. Stahl, Risk 10, 5 (1997)Google Scholar
  28. 28.
    J. Daníelsson, P. Hartmann, C. de Vries, Risk 11, 1 (1998)Google Scholar
  29. 29.
    F. Westerhoff, J. Econ. Stat. 228, 2 (2008)Google Scholar
  30. 30.
    T. Lux, M. Ausloos, in The Science of Disasters: Climate Disruptions, Heart Attacks, and Market Crashes, edited by A. Bunde, J. Kropp, H.J. Schellnhuber (Springer, Berlin, 2002), pp. 373–409Google Scholar
  31. 31.
    C. Homburg, P. Scherpereel, Controlling Management 49, 4 (2005)Google Scholar
  32. 32.
    G.A. Holton, Value-at-Risk: Theory and Practice (Academic Press, Elsevier, Amsterdam, 2003)Google Scholar
  33. 33.
    P. Zangari, RiskMetrics — Technical Document, 4th edn. (Morgan Guarantee Trust Company, Reuters Ltd., New York, 1996)Google Scholar

Copyright information

© EDP Sciences, SIF, Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BambergBambergGermany

Personalised recommendations