We study the effects of diverse beliefs on equilibrium securitization. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of traders' diverse beliefs about asset returns. Under risk neutrality, the issuer of...

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...