Ellis, Andrew ORCID: 0000-0002-7552-4832, Piccione, Michele and Zhang, Shengxing ORCID: 0000-0002-1475-2188 (2022) Equilibrium securitization with diverse beliefs. Theoretical Economics, 17 (1). 121 - 152. ISSN 1933-6837
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Abstract
We study the effects of diverse beliefs on equilibrium securitization under risk neutrality. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of the traders' diverse beliefs about asset returns. The issuer of securities tranches the asset pool, and traders sort among the tranches according to their beliefs. We show how the traders' disagreement about the correlation of asset returns is a key factor in determining which assets are pooled.
Item Type: | Article |
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Official URL: | https://econtheory.org/ |
Additional Information: | © 2022 The Authors. |
Divisions: | Economics |
Subjects: | H Social Sciences > HB Economic Theory |
JEL classification: | D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets G - Financial Economics > G2 - Financial Institutions and Services > G20 - General |
Date Deposited: | 10 Feb 2022 16:09 |
Last Modified: | 12 Oct 2024 04:51 |
URI: | http://eprints.lse.ac.uk/id/eprint/113728 |
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