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Dark Markets:
Asset Pricing and Information Transmission in Over-the-Counter Markets
Darrell Duffie

Book Description | Reviews
Chapter 1 [in PDF format]

TABLE OF CONTENTS:

List of Tables ix
List of Figures xi
Preface xiii

Chapter 1: Over-the-Counter Markets 1
1.1 Bilateral Negotiation of Terms 2
1.2 OTC Transparency 4
1.3 Why Trade Over the Counter? 6
1.4 Managing OTC Credit Risk 8
1.5 Price Behavior with Search Frictions 9

Chapter 2: The Case of Federal Funds Lending 13
2.1 T he Federal Funds Market 14
2.2 Data 17
2.3 A nalysis of Transaction-Pairing Likelihood 19
2.4 Determinants of the Rate 22

Chapter 3: Search for Counterparties 27
3.1 Preliminaries 27
3.2 R andom Matching 28
3.3 Dynamic Search Models 31
3.4 Markov Chain for Type 33
3.5 C ontinuous-Time Search and Matching 35
3.6 O ptimal Search 36
3.7 E quilibrium Search Intensities 39
3.8 Development of the Search Literature 40

Chapter 4: A Simple OTC Pricing Model 42
4.1 Basic Risk-Neutral OTC Pricing Model 42
4.2 Bargaining over the Price 46
4.3 R isk Aversion 49
4.4 N umerical Example 54
4.5 Price Response to Supply Shocks 56
4.6 N umerical Examples 59

Chapter 5: Information Percolation in OTC Markets 63
5.1 T he Basic Model 64
5.2 Population Information Dynamics 66
5.3 Market Settings 69
5.3.1 I nformation Sharing at Wallet Games 69
5.3.2 Double Auctions 70
5.4 N umerical Example 72
5.5 N ew Private Information 73
5.6 Multiagent Information Exchanges 74
5.7 V alid Initial Type Distributions 75
5.8 C onvergence and Further Extensions 76

Appendix: Foundations for Random Matching 79
A.1 Mathematical Preliminaries 79
A.2 R andom Matching Results 80
B: Counting Processes 84
Bibliography 87
Index 93

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File created: 4/17/2014

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