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Dániel Havran

is a Postdoctoral Fellow at Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences. He also holds a part-time Assistant Professorship position at the Corvinus University of Budapest, where he teaches Corporate Finance (BA and PhD levels) and Credit Risk Management (MSc). He obtained his PhD in Economics at Corvinus University of Budapest in 2011. His research interests are corporate cash and funding liquidity management and credit derivatives over-the-counter markets.

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Tamás Erb, Dániel Havran: Explaining the Network of Liquidity Providers on the OTC Credit Derivative Markets

We develope a model of credit derivative over-the-counter markets to study how market makers grow rapidly because of their liquidity providing role. In out one-shot model a market dealer contacts to each other to get quotes on trading possibilities. Whenever a quote is provided, the opportunity to accept this at the announced price quickly lapses. However the market dealers sustain their provided quote for different length of time. We suppose that there are dealers who manage their credit portfolio better, thus they are able to hold their quote for longer period, and this result lower intraday variability in their provided quotes. Other players can observe the volatile of quotes and they perceive it as a noise. Whenever a player has more volatile net position, the noise is higher. Each dealer plays two roles. As a passive trader, the dealer quotes to the others and receive incoming trading offers. A trader in active role searches the most profitable transaction using noisy signals about received quotes and the observed volatility of quotes related to certain dealers. We show that if risk averse dealers with diversity of initial endowment have noisy expectations on trading, intermediation activity appears and this is profitable on the market. It also defines a certain network structure suggesting the observable core-periphery structures on the over-the-counter markets.

Last modified: 2018.11.30.