Ecole Polytechnnique Fédérale de Lausanne
Quartier UNIL Dorigny Extranef #212
1015 Lausanne Switzerland
Institutional Affiliations: Ecole Polytechnnique Fédérale de Lausanne and Swiss Finance Institute
NBER Working Papers and Publications
|August 2018||Frictional Intermediation in Over-the-counter Markets|
with Benjamin Lester, Pierre-Olivier Weill: w24956
We extend Duffie, Garleanu, and Pedersen’s (2005) search-theoretic model of over-the-counter asset markets, allowing for a decentralized inter-dealer market with arbitrary heterogeneity in dealers’ valuations or inventory costs. We develop a solution technique that makes the model fully tractable and allows us to derive, in closed form, theoretical formulas for key statistics analyzed in empirical studies of the intermediation process in OTC market. A calibration to the market for municipal securities reveals that the model can generate trading patterns and prices that are quantitatively consistent with the data. We use the calibrated model to compare the gains from trade that are realized in this frictional market with those from a hypothetical, frictionless environment, and to distinguis...
|December 2014||Heterogeneity in Decentralized Asset Markets|
with Benjamin Lester, Pierre-Olivier Weill: w20746
We study a search and bargaining model of an asset market, where investors' heterogeneous valuations for the asset are drawn from an arbitrary distribution. Our solution technique makes the model fully tractable and allows us to provide a full characterization of the unique equilibrium, in closed-form, both in and out of steady-state. Using this characterization, we first establish that the model generates aggregate trading patterns that are consistent with those observed in many over-the-counter asset markets. Then, we show that the model can replicate empirical regularities reported from micro-level data sets, including the relationships between the length of the intermediation chains through which assets are reallocated, the network centrality of the dealers involved in these chains, an...