Applications of BoF-PSS2 simulator and how to use it in agent based models Workshop on Agent based modeling for banking and finance Villa Gualino, Torino 10 February 2009 Matti Hellqvist Oversight of Market Infrastructure division Financial Markets and Statistics department Bank of Finland Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 1
Outline • BoF-PSS2 simulator basics • Intended applications and examples • How to use this simulator in agent based models As usual, the views are those of the speaker and do not necessarily reflect Bank of Finlands position Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 2
Background of BoF-PSS2 Bank of Finland... – National central bank and monetary authority – Member in European System of Central Banks – Long tradition as a research oriented CB – Statutory task to ”participate in maintaining the reliability and efficiency of the payment system and overall financial system and participate in their development” ... Payment system simulator – BoF-PSS1 was built before Finland joined European Monetary Union (1.1.1999) – BoF-PSS2 was released in 2004 (beta 2003) • Specialised tool for payment system experts • Easy to use, versatile and modular • Designed to be shared with others • Available free of charge for research purposes Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 3
BoF-PSS2 - principles • Simulations of market infrastructures are often performed with one- off tailored models or inflexible test environments • BoF-PSS2 in contrast… – offers a versatile toolbox with most of the common ”building blocks” needed in a model of a payment system – has modular design: allows combinations of different blocks – Is extendable : users have possibility to introduce new modules – Records various statistics and has ready made reports – It is designed as an analysis tool – Is based on widely used free tools – standard interfaces Laboratory of payment and settlement systems Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 4
From input data to output statistics by replicating the process logic of real payment system Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 5
What goes in... • Data – Transactions, participants, balances, credit or bilateral limits – i.e. The account structure, bookings and constraints affecting the settlement process – Also optional data fields and user defined or meta data • System definitions – Type of system: RTGS, continuous netting, deferred netting – General parameters – Process logic, which is • Divided into algorithms classes: Entry, queue release etc. • Composed by selecting appropriate algorithm for each needed class. – Multiple separate and interlinked systems are possible Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 6
What comes out Output database •Large number of indicators recorded during simulation •Only selected tables are saved •Has four levels of statistics: 1.General information of executed simulations 2.Statistics and indicators in the system level 3.Statsitics and indicators in the participant/ account level 4.Transaction level Reports : •First view summaries •Time series aggregation tool •Comparison reports Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 7
Analysis tool aspect • Data management – Parallel data sets and projects are possible – Data files in CSV format and templates for data – Input or output database can be accessed directly • Data imports, exports or modifications • Special queries – Easy standalone use • Computational efficiency – Minimised file i/o compared to real systems – Simplified process with only the necessary variables • Based on platform independent and widely used technologies – Java, MySQL (OEM licence needed) – Available as PC software for MS operating systems (currently) • Capability for other analyses from the same data e.g. network analysis Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 8
User community • Over 70 granted licences (January 2009) of which 61% in central banks, 24% in academic institutions, 7% in automated clearing houses (ACH), 3 % in international organisations, 5% others • Licenced users among others: University of Torino, Banca di Italia, Bank of England, Banco de Mexico Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 9
Outline • BoF-PSS2 simulator basics • Intended applications and examples • How to use this simulator in agent based models Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 10
Use of BoF-PSS2 • Basic idea: Model what ever you want related to payment system. This tool allows you to replicate (closely) realistic settlement process in your analysis and record a variety of statistics from it Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 11
Purposes of simulations (Deepening of) OVERSIGHT Risk Scenario analysis quantification Risk Stress testing identification Simulations of market Analysis of market infrastructure Assesment of structure and practicies contingency plans Testing & New policies development & regulations LVPS Efficiency operations Simulations are well suited for multiple CB tasks Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 12
Classification of analyses with BoF-PSS2 with publicly available results* Network Liquidity Credit risk Delay/queuin analysis ** analysis analysis g analysis Oversight 2 20 16 14 USA, UK FIN, UK, SWE, CAN, ISL, UK, CAN, FIN, DEN, FIN, UK, SWE, AUT, JPN, SUI, HOL, AUT, JAP, SUI, HOL, CAN, AUT, JAP, HUN, DEN, POL, DEN, POL, BIS HOL, HUN, POL NOR, BIS Operational 7 4 5 USA, KOR, FIN, ISL, CAN, UK, FIN USA, DEN, CAN, UK, development CAN, UK FIN issues Policy 2 15 10 13 USA, UK FIN, KOR, DEN, FIN, ISL, DEN, CAN, FIN, DEN, SWE, concerns SWE, CAN, USA, USA, UK, POL CAN, USA, UK, POL UK, POL, NOR Basic 5 4 4 USA, FIN, JAP, BIS USA, FIN, JAP, BIS USA, DEN, FIN research The number of unpublished studies is likely much larger * See extra slides for more details ** studies performed with same network module which is (currently being) integrated in BoF-PSS2 Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 13
Typical oversight studies • Network analysis – Which are the most important participants and connections? – Do connections vary during the day and from day to day? – Which are the end-of-day and overnight patterns? – How would the network change in outages? • Liquidity analysis – Which are the current liquidity levels and effects of general drainage? – What is the impact of large participants’ liquidity problems or stopping? – Are some participants working with too low liquidity levels? – How large shocks can the current liquidity supply sustain? • Credit risk analysis – How large are the current credit risk levels and systemic risk probability? – How much will credit risks grow in crisis situations? – To which extent can participants sustain current credit limits? – What impact will more stringent credit risk requirement have? • Delay/queuing analysis – Which effects will large participants’ and system stop have on delays – Does some participants delay payments more than others? Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 14
Typical policy studies • Network analysis – What would be the impact of new participant access criteria? – What is the current level of tiering and the impact of possible changes? – What is the network characteristic of prioritised transactions? • Liquidity analysis – What is the impact of new liquidity regimes – What would the effects be of new liquidity pricing schemes? – What would be the impact of different prioritising regimes? – What would be the most efficient liquidity/delay levels? • Credit risk analysis – What would the impact be of new credit risk rules? – What would be the most efficient credit risk/delay levels? • Delay/queuing analysis – What could be the effects of new rush-hour pricing policies? – Which gridlock resolution algorithms would be most efficient for given payment flows? – Which are the effects of bypassing FIFO or other processing order rules? – Which are the effects of new open hour rules? Bank of Finland PAYMENT AND SETTLEMENT SYSTEM SIMULATOR ABM-BaF 10 February 2009 • 15
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