High correlations between risks can increase required insurer capital and/or reduce the availability of insurance. For such increase lines, securitization is rapidly emerging as an alternative form of risk transfer. The ultimate success of securitization in replacing or complementing traditional...

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk averse, we determine conditions on the changes in asset risk that are both necessary and sufficientfor the asset price to fall. We show that these conditions neither imply, nor...