Decentralized Exchange

Semyon Malamud and Marzena Rostek ()
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Marzena Rostek: Department of Economics, University of Wisconsin-Madison

No 12-18, Working Papers from NET Institute

Abstract: We develop a model of decentralized markets in which trading environment is determined by a general network structure. We study how the equilibrium allocation and liquidity depend on the network topology and how an agent’s risk exposure depends on other agents’ exposures. Agents hold several, position specific “local market portfolios,” that also determine the “local market clearing prices”. The impact of one trader on another decays exponentially in the distance in the network, at an explicitly given equilibrium rate. Decentralized trading may increase welfare. Liquidity may be higher for “less connected” networks.

Keywords: Asset pricing; Decentralized Market; Trading Network; Over-the-counter; Welfare (search for similar items in EconPapers)
JEL-codes: D53 G11 G12 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012-09
New Economics Papers: this item is included in nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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