IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2501.16331.html
   My bibliography  Save this paper

Decoding OTC Government Bond Market Liquidity: An ABM Model for Market Dynamics

Author

Listed:
  • Alicia Vidler
  • Toby Walsh

Abstract

The over-the-counter (OTC) government bond markets are characterised by their bilateral trading structures, which pose unique challenges to understanding and ensuring market stability and liquidity. In this paper, we develop a bespoke ABM that simulates market-maker interactions within a stylised government bond market. The model focuses on the dynamics of liquidity and stability in the secondary trading of government bonds, particularly in concentrated markets like those found in Australia and the UK. Through this simulation, we test key hypotheses around improving market stability, focusing on the effects of agent diversity, business costs, and client base size. We demonstrate that greater agent diversity enhances market liquidity and that reducing the costs of market-making can improve overall market stability. The model offers insights into computational finance by simulating trading without price transparency, highlighting how micro-structural elements can affect macro-level market outcomes. This research contributes to the evolving field of computational finance by employing computational intelligence techniques to better understand the fundamental mechanics of government bond markets, providing actionable insights for both academics and practitioners.

Suggested Citation

  • Alicia Vidler & Toby Walsh, 2024. "Decoding OTC Government Bond Market Liquidity: An ABM Model for Market Dynamics," Papers 2501.16331, arXiv.org.
    • Handle: RePEc:arx:papers:2501.16331
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2501.16331
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2501.16331. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.