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Article Dans Une Revue Economic Theory Année : 2015

Incomplete markets and derivative assets

Résumé

We analyze derivative asset trading in an economy in which agents face both aggregate and uninsurable idiosyncratic risks. Insurance markets are incomplete for idiosyncratic risk and, possibly, for aggregate risk as well. However, agents can exchange insurance against aggregate risk through derivative assets such as options. We present a tractable framework, which allows us to characterize the extent of risk sharing in this environment. We show that incomplete insurance markets can explain some properties of the volume of traded derivative assets, which are difficult to explain in complete market economies.
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Dates et versions

halshs-01513312 , version 1 (06-12-2021)

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François Legrand, Xavier Ragot. Incomplete markets and derivative assets. Economic Theory, 2015, 62 (3), pp.517-545. ⟨10.1007/s00199-015-0912-9⟩. ⟨halshs-01513312⟩
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