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Liquidity and Fragility in OTC Credit Derivatives Markets


  • Pierre-Olivier Weill


  • Andrea Eisfeldt

    (UCLA Anderson School of Management)

  • Andrew Atkeson

    (University of California)


This paper develops a search and matching model of an over-the-counter market for credit derivatives. In equilibrium, the large volume of bilateral trade creates a network of credit exposures in which banks are linked together by a complex liability structure, with gross credit exposures that can greatly exceed net credit exposures. Our results shed light on the impact of the market structure on trading outcomes, including the allocation of risk, the level and distribution of prices and trading profits, and the systemic importance of banks.

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  • Pierre-Olivier Weill & Andrea Eisfeldt & Andrew Atkeson, 2012. "Liquidity and Fragility in OTC Credit Derivatives Markets," 2012 Meeting Papers 1058, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1058

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