The linear and nonlinear optical properties of a composite containing interacting spherical silver nanoparticles embedded in a dielectric host are studied as a function of interparticle separation using three dimensional frequency domain simulations. It is shown that for a fixed amount of metal, the effective third-order nonlinear susceptibility of the composite chi((3))(omega) can be significantly enhanced with respect to the linear optical properties, due to a combination of resonant surface plasmon excitation and local field redistribution. It is shown that this geometry-dependent susceptibility enhancement can lead to an improved figure of merit for nonlinear absorption. Enhancement factors for the nonlinear susceptibility of the composite are calculated, and the complex nature of the enhancement factors is discussed
