Name：Shengxing Zhang（张圣醒）

Institution: London School of Economics

Title: Endogenous Market Making and Network Formation

Time: June 1nd, 14:00-15:30

Location: RM 714, Fanhai Building

Abstract: This paper proposes a theory of intermediation that explains the existing fi- nancial network with a few highly interconnected institutions. In contrast to the previous trading models based on random matching or exogenous networks, we allow institutions to choose their counterparties and the number of trading links in a dynamic framework. We show that banks with lower risk exposure endogenously specialize in the role of intermediary, forming the core of the network. Moreover, such a highly asymmetric structure is in fact efficient. This tractable framework further allows us to derive normative implications, taking into account the endogenous response of financial markets.