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Dark MarketsAsset Pricing and Information Transmission in Over-the-Counter Markets$
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Darrell Duffie

Print publication date: 2012

Print ISBN-13: 9780691138961

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691138961.001.0001

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Information Percolation in OTC Markets

Information Percolation in OTC Markets

(p.63) Chapter 5 Information Percolation in OTC Markets
Dark Markets

Darrell Duffie

Princeton University Press

This chapter describes a simple model of the “percolation” of information of common interest through an over-the-counter market with many agents. It also includes an explicit solution for the cross-sectional distribution of posterior beliefs at each time. It begins with the basic information structure for the economy and the setting for search and random matching. It then shows how to solve the model for the dynamics of the cross-sectional distribution of information. The remainder of the chapter is devoted to market settings and to extensions of the model that handle public releases of information, the receipt of new private information over time, and the release of information among groups of more than two agents at a time.

Keywords:   percolation, random matching, posterior beliefs, information exchange, private information, over-the-counter market, OTC market

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