OTC Intermediaries

Andrea Eisfeldt, Bernard Herskovic, Emil Siriwardane and Sriram Rajan
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Andrea Eisfeldt: University of California, Los Angeles
Bernard Herskovic: University of California, Los Angeles
Emil Siriwardane: Harvard Business School
Sriram Rajan: Office of Financial Research, US Treasury

No 204, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Over-the-counter (OTC) markets for financial assets are dominated by a relatively small number of core intermediaries and a large number of peripheral customers. In this paper, we develop a model of trade in a core-periphery network and estimate its key structural parameters using proprietary credit default swap data from the Depository Trust & Clearing Corporation (DTCC). Using our calibrated model, we provide quantitative estimates of: (1) the effect of network frictions on the level of OTC derivatives prices; (2) the key determinants of cross sectional dispersion in bilateral prices; and (3) how prices and risk-sharing change in response to the failure of a dealer.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:204

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