The use of agent-based models has increased in the last years to simulate social systems and, in particular, financial markets. Agent-based models of financial markets are usually validated by checking the ability of the model to reproduce a set of empirical stylised facts. However, other common-sense evidence is available which is often not taken into account, ending with models which are valid but not sensible. In this paper we present an agent-based model of a stock market which incorporates this type of commonsense evidence and implements realistic trading strategies based on practitioners literature. We next validate the model using a comprehensive approach consisting of four steps: assessment of face validity, sensitivity analysis, calibration and validation of model outputs.

The financial system is inherently procyclical, as it amplifies the course of economic cycles, and precisely one of the factors that has been suggested to exacerbate this procyclicality is the Basel regulation on capital requirements. A er the recent credit crisis, international regulators have turned their eyes to countercyclical regulation as a solution to avoid similar episodes in the future. Countercyclical regulation aims at preventing excessive risk taking during booms to reduce the impact of losses su ered during recessions, for example increasing the capital requirements during the good times to improve the resilience of financial institutions at the downturn. The Basel Committee has already moved forward towards the adoption of countercyclical measures on a global scale: the Basel III Accord, published in December , revises considerably the capital requirement rules to reduce their procyclicality. These new countercyclical measures will not be completely implemented until , so their impact cannot be evaluated yet, and it is a crucial question whether they will be e ective in reducing procyclicality and the appearance of crisis episodes such as the one experienced in-. For this reason, we present in this article an agent-based model aimed at analysing the e ect of two countercyclical mechanisms introduced in Basel III: the countercyclical bu er and the stressed VaR. In particular, we focus on the impact of these mechanisms on the procyclicality induced by market risk requirements and, more specifically, by value-at-risk models, as it is a issue of crucial importance that has received scant attention in the modeling literature. The simulation results suggest that the adoption of both of these countercyclical measures improves market stability and reduces the emergence of crisis episodes.