The Market for OTC Derivatives
AbstractWe develop a model of equilibrium entry, trade, and price formation in over-the- counter (OTC) markets. Banks trade derivatives to share an aggregate risk subject to two trading frictions: they must pay a fixed entry cost, and they must limit the size of the positions taken by their traders because of risk-management concerns. Although all banks in our model are endowed with access to the same trading technology, some large banks endogenously arise as “dealers,” trading mainly to provide intermediation services, while medium sized banks endogenously participate as “customers” mainly to share risks. We use the model to address positive questions regarding the growth in OTC markets as trading frictions decline, and normative questions of how regulation of entry impacts welfare.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18912.
Date of creation: Mar 2013
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- Andrew Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2013. "The market for OTC derivatives," Staff Report 479, Federal Reserve Bank of Minneapolis.
- Atkeson, Andrew & Eisfeldt, Andrea L. & Weill, Pierre-Olivier, 2013. "The Market for OTC Derivatives," CEPR Discussion Papers 9403, C.E.P.R. Discussion Papers.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G0 - Financial Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-30 (All new papers)
- NEP-BAN-2013-03-30 (Banking)
- NEP-DGE-2013-03-30 (Dynamic General Equilibrium)
- NEP-FMK-2013-03-30 (Financial Markets)
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