In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Also, some investors supply and others demand forward contracts. Since investors are assumed to have similar risk-averse preferences, demand for these contracts is...

In this paper, we drive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Also, some investors supply and others demand forward contracts. Since investors are assumed to have similar risk-averse preferences, the demand for these contracts...

We consider the demand for state contingent claims in the presence of a zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...

We establish a necessary and sufficient condition for the risk aversion of an agent s derived utility function to increase with independent, zero-mean background risk. This condition is weaker than standard risk aversion. For small risks, the condition is that the ratio of the third to the first...

We establish a necessary and sufficient condition for the risk aversion of an agent s derived utility function to increase with independent, zero-mean background risk. This condition is weaker than standard risk aversion. For small risks, the condition is that the ratio of the third to the first...