International financial networks with intermediation: modeling,analysis, and computations

In this paper, we develop a framework for the modeling, analysis, and computation of solutions to international financial networks with intermediation. We consider three tiers of decision-makers consisting of: source agents in different countries, financial intermediaries, and consumers associated with the demand markets for different products in distinct currencies and countries. We model the behavior of the decision-makers, derive the equilibrium conditions, and establish the variational inequality formulation. We then utilize the variational inequality formulation to obtain qualitative properties of the equilibrium financial flow and price pattern as well as to propose an algorithm along with convergence results. Numerical examples are presented to illustrate both the model and the computational procedure. This research extends the recent results surrounding the modeling of financial networks with intermediation to the international dimension.Revised: January 2003, AMS Classification: 90, 91