Abstract

Over-the-counter (OTC) markets for derivatives, credit derivatives and repurchase agreements played a significant role in the global financial crisis. Rather than being traded through a centralized institution such as a stock exchange, OTC trades are negotiated privately between market participants who may be unaware of prices that are currently available elsewhere in the market. In these relatively opaque markets, investors can be in the dark about the most attractive available terms and who might be offering them. This opaqueness exacerbated the financial crisis, as regulators and market participants were unable to quickly assess the risks and pricing of these instruments.

These lecture by Prof. Duffie will provide a concise introduction to key modeling issues and techniques used for studying questions such as valuation, risk sharing and information transmission in OTC markets.