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Topology of the foreign currency/forint swap market

Author

Listed:
  • Ádám Banai
  • András Kollarik
  • András Szabó-Solticzky

    (Magyar Nemzeti Bank)

Abstract

In our study, we examine the network structure of the currency swap market, the volume of which amounts to several times the Hungarian GDP. With this paper, we aim to establish a complete picture of the market by complementing the results for the overnight market. Additionally, we can now analyse a longer time series than in our 2013 study. We look at the properties of the graphs in segments representing various maturities. We find that the properties of the graph derived from the overall market and the dynamics of those properties are identical to those of the short-term market, while trends differ for various tenors. The longer the maturities, the less the graphs satisfy the small-world property. The longest markets are increasingly closer to random graphs. Although the effect of shocks to large actors is smaller in such graphs, this change also suggests that counterparties trusted each other less as transactions became longer. This is also reinforced by the fact that following the onset of the crisis, the number of connected vertices gradually decreased in the networks of longer markets. In other words, weakening trust is also manifested in the decreasing number of counterparties. This is confirmed by the development of average degree and average path length, and by affinity functions.

Suggested Citation

  • Ádám Banai & András Kollarik & András Szabó-Solticzky, 2015. "Topology of the foreign currency/forint swap market," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(2), pages 28-157.
    • Handle: RePEc:mnb:finrev:v:14:y:2015:i:2:p:28-157
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    References listed on IDEAS

    as
    1. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
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    More about this item

    Keywords

    financial networks; FX swap; financial crisis; topology; centrality indices;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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