The challenges of cryptographic key distribution over a wireless network are two-fold. First, the open wireless medium makes eavesdropping easy. Second, the dynamic topology of wireless network makes cryptographic key distribution difficult. In this thesis, we adopt a physical layer approach and consider a system model that the legitimate users' channels have correlated states. We explore the secret key generation from the inherent randomness of such a channel. In some cases, the correlated states cannot be observed unless a sender excites them.;We first look the secret key generation via channel excitation where the excitation source is a deterministic pre-defined system parameter. We show that the secret key capacity is a state-dependent generalization of that in Ahlswede and Csiszar's source-type model with wiretapper. The secret key capacity of excited source is achieved by an input distribution which corresponds to one with optimal combination of states. The results are applied to a reciprocal Rayleigh channel. We show that the optimal sounding signal is peaky at low SNRs. When the signal bandwidth is large and the physical channel is sparse, we show that there is one optimal operating bandwidth that achieves the highest ergodic secret key rate. We also characterize the (secrecy) outage performance under a non-ergodic regime. We later generalize the system to the case using random excitation source in which the sender can choose an excitation sequence according to her private source of randomness. Our coding strategy to achieve capacity involves the key generation scheme and the wiretap channel coding. We show that the secret key capacity is composed of both source-type and channel-type randomness. We also characterize an exponential bound of that probability that key agreement failures and an exponential bound of information leakage to an eavesdropper. These exponents allow us to determine the set of "strongly-achievable" secret key rates. We observe there is a fundamental tradeoff between reliability and secrecy in the system.
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