Mark Paddrik

University of Virginia, Systems and Information Engineering, Alumnus

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Supervisors: William Scherer, Ginger M. Davis, and Peter Beling
Phone: (540) 270 8675

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Judith L Green

University of California, Santa Barbara

Mohammed Seyam

Mansoura University

Cristina Bicchieri

University of Pennsylvania

Don Ross

University College Cork

Steffen Boehm

University of Exeter

David Seamon

Kansas State University

Remo Caponi

University of Cologne

michele ciavarella

Politecnico di Bari

Valerio Sangiovanni

University of Trento

Armando Marques-Guedes

UNL - New University of Lisbon

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Papers by Mark Paddrik

Bank Networks and Systemic Risk: Micro-Evidence Before and After the National Banking Acts of 1863-1864

Social Science Research Network, Sep 17, 2015

Cross-Asset Market Order Flow, Liquidity, and Price Discovery

Social Science Research Network, 2019

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

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Anatomy of the Repo Rate Spikes in September 2019

Social Science Research Network, 2023

Intraday Timing of General Collateral Repo Markets

Liberty Street Economics, 2021

Contagion in Derivatives Markets

Management Science, Aug 1, 2020

A major credit shock can induce large intra-day variation margin payments between counterparties ... more A major credit shock can induce large intra-day variation margin payments between counterparties in derivatives markets, which may force some participants to default on their payments. These payment shortfalls become amplified as they cascade through the network of exposures. Using detailed DTCC data we model the full network of exposures, shock-induced payments, initial margin collected, and liquidity buffers for about 900 firms operating in the U.S. credit default swaps market. We estimate the total amount of contagion, the marginal contribution of each firm to contagion, and the number of defaulting firms for a systemic shock to credit spreads. A novel feature of the model is that it allows for a range of behavioral responses to balance sheet stress, including delayed or partial payments. The model provides a framework for analyzing the relative effectiveness of different policy options, such as increasing margin requirements or mandating greater liquidity reserves.

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Bank Networks and Systemic Risk: Evidence from the National Banking Acts

The American Economic Review, Sep 1, 2019

The National Banking Acts (NBAs) of 1863-1864 established rules governing the amounts and locatio... more The National Banking Acts (NBAs) of 1863-1864 established rules governing the amounts and locations of interbank deposits, thereby reshaping the bank networks. Using unique data on bank balance sheets and detailed interbank deposits in 1862 and 1867 in Pennsylvania, we study how the NBAs changed the network structure and quantify the effect on financial stability in an interbank network model. We find that the NBAs induced a concentration of interbank deposits at both the city and bank levels, creating systemically important banks. Although the concentration facilitated diversification, contagion would have become more likely when financial center banks faced large shocks.

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How Safe are Central Counterparties in Credit Default Swap Markets

RePEc: Research Papers in Economics, 2019

We propose a general framework for estimating the vulnerability to default by a central counterpa... more We propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in the credit default swaps market. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect effects of nonpayment by members and/or their clients through the full network of exposures. We illustrate the approach for the U.S. credit default swaps market under shocks that are similar in magnitude to the Federal Reserve's stress tests. The analysis indicates that conventional stress testing approaches may underestimate the potential vulnerability of the main CCP for this market.

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Central Counterparty Default Waterfalls and Systemic Loss

Journal of Financial and Quantitative Analysis, Nov 28, 2022

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

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Intraday Timing of General Collateral Repo Markets

RePEc: Research Papers in Economics, Jul 14, 2021

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Visualizations for sense-making in financial market regulation

Interbank Market Formation through Reinforcement Learning and Risk Aversion

SSRN Electronic Journal, 2017

In this study, we propose a multi-agent model to examine bank lending and borrowing risk behavior... more In this study, we propose a multi-agent model to examine bank lending and borrowing risk behaviors and their implications to interbank market dynamics. Using data from 2001 to 2014 that covers around U.S. 6600 banks, we model individual bank decisions using the temporal difference reinforcement learning algorithm based on banks’ lending preferences and environment, and we then generate the interbank market dynamics from the empirical data. This dynamic model allows us to construct interbank networks as they change with bank risk preferences, and thus facilitates the analysis of the banking systems stability. The model successfully replicates the key characteristics of interbank lending and borrowing relationships that have been documented in the recent literature. A key finding of this study is that the risk aversion choice of individual bank leads to unique interbank market structures that suggest the macro risk preference of the market. Combined with the use of balance sheet data, this modeling framework helps central banks and regulators building more functional models for examining the interbank market stability problems.

Interbank Contagion with Suboptimal Bilateral Exposures: An ABM Approach to Endogenously Form Networks

SSRN Electronic Journal, 2016

The potential impact of interconnected financial institutions on interbank financial systems is a... more The potential impact of interconnected financial institutions on interbank financial systems is a financial stability concern for central banks and regulators. A number of algorithms/methods have been developed to extrapolate latent interbank risk exposures. However, most use highly stylized network models and reconstruction methods with global optimality lending allocation approaches such as maximizing entropy or minimizing costs. This paper argues that U.S. bank lending and borrowing decisions are largely suboptimal and performancedriven. We present an agent-based model to endogenously reconstruct interbank networks based on 6,600 banks' decision rules and behaviors reflected in quarterly balance sheets. The model formulation reproduces dynamics similar to those of the 2007-09 financial crisis and shows how bank losses and failures arise from network contagion and lending market illiquidity. When calibrated to post-crisis data from 2011-14, the model shows the banking system has reduced its likelihood of bank failures through network contagion and illiquidity, given a similar stress scenario.

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Agent based model of the E-Mini Future: Application for policy making

Proceedings Title: Proceedings of the 2012 Winter Simulation Conference (WSC), 2012

An agent-based model (ABM) has a structure, which includes a set of agents, a topology and an env... more An agent-based model (ABM) has a structure, which includes a set of agents, a topology and an environment. A simplified conception of a financial market includes a set of market participants, a trading mechanism, and a set of securities. In a typical ABM of a financial market, the market participants are agents, the market mechanism is the topology and the exogenous flow of information into the market is the environment. A zero-intelligence ABM model of the E-Mini Futures Market is presented. Several classes of agents are characterized by their speed and placement of orders within the limit order book. The proposed minimum quote life rule is implemented in the simulation. The minimum quote life rule prevents new orders from being cancelled or modified before a given time limit. Through experimentation, tradeoff curves are generated. Thereby, illustrating the usefulness of this ABM and its ability to inform ongoing financial policy debates.

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The Role of Visual Analysis in the Regulation of Electronic Order Book Markets

SSRN Electronic Journal, 2014

Electronic markets and automated trading have resulted in a drastic increase in the quantity and ... more Electronic markets and automated trading have resulted in a drastic increase in the quantity and complexity of regulatory data. Reconstructing the limit order book and analyzing order flow is an emerging challenge for financial regulators. New order types, intra-market behavior and other exchange functionality further complicate the task of understanding market behavior at multiple levels. Data visualizations have proven to be a fundamental tool for building intuition and enabling exploratory data analysis in many fields. In this paper, we propose the incorporation of visualizations in the workflow of multiple financial regulatory roles, including market surveillance, enforcement, and supporting academic research.

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Effects of Limit Order Book Information Level on Market Stability Metrics

SSRN Electronic Journal, 2014

Using an agent-based model of the limit order book, we explore how the levels of information avai... more Using an agent-based model of the limit order book, we explore how the levels of information available to participants, exchanges, and regulators can be used to improve our understanding of the stability and resiliency of a market. Ultimately, we want to know if electronic market data contains previously undetected information that could allow us to better assess market stability. Using data produced in the controlled environment of an agent-based model's limit order book, we examine various resiliency indicators to determine their predictive capabilities. Most of the types of data created have traditionally been available either publicly or on a restricted basis to regulators and exchanges, but other types have never been collected. We confirmed our findings using actual order flow data with user identifications included from the CME (Chicago Mercantile Exchange) and New York Mercantile Exchange (NYMEX). Our findings strongly suggest that high-fidelity microstructure data in combination with price data can be used to define stability indicators capable of reliably signaling a high likelihood for an imminent flash crash event about one minute before it occurs.

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Visualizations for sense-making in financial market regulation

2014 IEEE International Conference on Big Data (Big Data), 2014

Electronic markets and automated trading have resulted in a drastic increase in the quantity and ... more Electronic markets and automated trading have resulted in a drastic increase in the quantity and complexity of regulatory data. Regulatory analysis now includes detailed analysis of all messaging and communications related to electronic limit order books. New order types, intra-market behavior and other exchange functionality further complicate analysis. Data visualizations have proven to be a fundamental tool for building intuition and enabling exploratory data analysis in many fields. In this paper, we propose the incorporation of visualizations in the workflow of multiple financial regulatory roles, including market surveillance, enforcement, and academic research.

Visualizations for Financial Market Regulation

SSRN Electronic Journal, 2013

ABSTRACT The technological advancement of financial markets has allowed for trade to move to bein... more ABSTRACT The technological advancement of financial markets has allowed for trade to move to being nearly entirely electronic, with the majority of trades placed by automated participants. This has resulted in drastic increases in the quantity and complexity of regulatory data. The processing and analyzing of these markets and participants have emerged as a serious challenge for financial regulators. New order types, intra-market behavior and other exchange functionality further complicate the task of understanding market behavior and events. Data visualizations have proven to be a fundamental tool for building intuition and enabling exploratory data analysis in many fields. In this paper, we propose the incorporation of visualizations in the workflow of multiple financial regulatory roles, including market surveillance, enforcement, and academic research.

Assessing the Safety of Central Counterparties

SSRN Electronic Journal

A proposed framework for empirically assessing a central counterparty’s capacity to cope with sev... more A proposed framework for empirically assessing a central counterparty’s capacity to cope with severe financial stress. Using public disclosure data for global central counterparties (CCPs), we show how to estimate the probability that a CCP could cover any specified fraction of payment defaults by its members. This framework supplements conventional standards of risk management such as Cover 2 and provides a comparative and comprehensive approach to assessing risk protection across CCPs that is not predicated on a specific number of member defaults. We apply the approach to a wide range of CCPs in different geographical jurisdictions and asset classes and find that there are substantial differences in protection coverage. In particular, large European CCPs appear to be significantly safer than their counterparts in Asia-Pacific and North America. These differences are also reflected in supervisory data that provide CCP members’ risk assessments of the CCPs to which they belong.<br>

Replication data for: Bank Networks and Systemic Risk: Evidence from the National Banking Acts

The National Banking Acts (NBAs) of 1863–1864 established rules governing the amounts and locatio... more The National Banking Acts (NBAs) of 1863–1864 established rules governing the amounts and locations of interbank deposits, thereby reshaping the bank networks. Using unique data on bank balance sheets and detailed interbank deposits in 1862 and 1867 in Pennsylvania, we study how the NBAs changed the network structure and quantify the effect on financial stability in an interbank network model. We find that the NBAs induced a concentration of interbank deposits at both the city and bank levels, creating systemically important banks. Although the concentration facilitated diversification, contagion would have become more likely when financial center banks faced large shocks.

Central Counterparty Default Waterfalls and Systemic Loss

SSRN Electronic Journal, 2020

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

Download

Bank Networks and Systemic Risk: Micro-Evidence Before and After the National Banking Acts of 1863-1864

Social Science Research Network, Sep 17, 2015

Cross-Asset Market Order Flow, Liquidity, and Price Discovery

Social Science Research Network, 2019

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

Download

Anatomy of the Repo Rate Spikes in September 2019

Social Science Research Network, 2023

Intraday Timing of General Collateral Repo Markets

Liberty Street Economics, 2021

Contagion in Derivatives Markets

Management Science, Aug 1, 2020

Download

Bank Networks and Systemic Risk: Evidence from the National Banking Acts

The American Economic Review, Sep 1, 2019

Download

How Safe are Central Counterparties in Credit Default Swap Markets

RePEc: Research Papers in Economics, 2019

Download

Central Counterparty Default Waterfalls and Systemic Loss

Journal of Financial and Quantitative Analysis, Nov 28, 2022

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

Download

Intraday Timing of General Collateral Repo Markets

RePEc: Research Papers in Economics, Jul 14, 2021

See Profile

Visualizations for sense-making in financial market regulation

Interbank Market Formation through Reinforcement Learning and Risk Aversion

SSRN Electronic Journal, 2017

Interbank Contagion with Suboptimal Bilateral Exposures: An ABM Approach to Endogenously Form Networks

SSRN Electronic Journal, 2016

Download

Agent based model of the E-Mini Future: Application for policy making

Proceedings Title: Proceedings of the 2012 Winter Simulation Conference (WSC), 2012

Download

The Role of Visual Analysis in the Regulation of Electronic Order Book Markets

SSRN Electronic Journal, 2014

Download

Effects of Limit Order Book Information Level on Market Stability Metrics

SSRN Electronic Journal, 2014

Download

Visualizations for sense-making in financial market regulation

2014 IEEE International Conference on Big Data (Big Data), 2014

Electronic markets and automated trading have resulted in a drastic increase in the quantity and ... more Electronic markets and automated trading have resulted in a drastic increase in the quantity and complexity of regulatory data. Regulatory analysis now includes detailed analysis of all messaging and communications related to electronic limit order books. New order types, intra-market behavior and other exchange functionality further complicate analysis. Data visualizations have proven to be a fundamental tool for building intuition and enabling exploratory data analysis in many fields. In this paper, we propose the incorporation of visualizations in the workflow of multiple financial regulatory roles, including market surveillance, enforcement, and academic research.

Visualizations for Financial Market Regulation

SSRN Electronic Journal, 2013

Assessing the Safety of Central Counterparties

SSRN Electronic Journal

Replication data for: Bank Networks and Systemic Risk: Evidence from the National Banking Acts

Central Counterparty Default Waterfalls and Systemic Loss

SSRN Electronic Journal, 2020

Views and opinions expressed are those of the authors and do not necessarily represent official p... more

Download

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