Dark Markets: Asset Pricing and Information Transmission in over-the-Counter Markets

By Darrell Duffie | Go to book overview

CHAPTER 3
Search for Counterparties

This chapter introduces the modeling of search and random matching in large economies. The objective is to build intuition and techniques for later chapters. After some mathematical prerequisites, the notion of random matching is defined. The law of large numbers is then invoked to calculate the crosssectional distribution of types of matches. This is extended to multiperiod search, first in discrete-time settings and then in continuous time. The optimal search intensity of a given agent, given the cross-sectional distribution of types in the population, is characterized with Bellman's principle. We then briefly take up the issue of equilibrium search efforts.


3.1 PRELIMINARIES

We fix some mathematical preliminaries, beginning with a probability space (Ω,F,P,). The elements of Ω are the possible states of the world. The elements of F are events, sets of states to which we can assign a probability. The probability measure P assigns a probability in [0,1] to each event. We also fix a measure space (G, G, γ) of agents so that γ(B) is the quantity of agents in a measurable subset B of agents. The total quantity γ(G) of agents is positive but need not be 1.

We suppose that the measure γ is atomless, meaning that there is an infinite number of agents none of which has a positive mass. The set of agents is therefore sometimes described as a [continuum.] For example, agents could be uniformly distributed on the unit interval G = [0,1]. Combining the continuum property with a notion of the independence of search across agents will lead in this chapter to an exact law of large numbers, by which the the crosssectional distribution of search outcomes is deterministic (almost surely). For

-27-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Dark Markets: Asset Pricing and Information Transmission in over-the-Counter Markets
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Figures xi
  • Preface xiii
  • Chapter 1 - Over-the-Counter Markets 1
  • Chapter 2 - The Case of Federal Funds Lending 13
  • Chapter 3 - Search for Counterparties 27
  • Chapter 4 - A Simple Otc Pricing Model 42
  • Chapter 5 - Information Percolation in Otc Markets 63
  • Appendix A - Foundations for Random Matching 79
  • Appendix B - Counting Processes 84
  • Bibliography 87
  • Index 93
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 95

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.