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Optimal Contract for Asset Trades : Collateralizing or Selling?
Kang, Kee-Youn - 2020
I study the conditions under which assets are sold or used as collateral. Secured loans can be optimal by reducing the … lender's incentives to acquire costly information about the future value of collateral assets. Furthermore, when the borrower … has incentives to falsify the assets' quality, the assets cannot be sold but can be used as collateral via over …
Persistent link: https://www.econbiz.de/10012851350
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Risk Allocation and Financial Intermediation
Goussebaïle, Arnaud - 2021
The classic Arrow-Debreu framework requires a very large number of specific securities to reach Pareto optimality. The present paper shows that financial intermediation can play an important role in maintaining a more parsimonious market framework while still obtaining Pareto optimality. In the...
Persistent link: https://www.econbiz.de/10013212181
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Rational asset pricing bubbles and portfolio constraints
Hugonnier, Julien - 2010
This article shows that the presence of portfolio constraints can give rise to rational asset pricing bubbles in equilibrium even if there are unconstrained agents in the economy who can bene t from the corresponding limited arbitrage opportunities. Furthermore, it is shown that when they are...
Persistent link: https://www.econbiz.de/10003966068
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Long-run heterogeneity in an exchange economy with fixed-mix traders
Bottazzi, Giulio; Dindo, Pietro; Giachini, Daniele - 2015
We consider an exchange economy with heterogeneous agents and multiple assets and investigate the coupled dynamics of assets' prices and agents' wealth. We assume that agents have heterogeneous beliefs and invest on each asset a fraction of wealth proportional to its expected dividends. Our main...
Persistent link: https://www.econbiz.de/10011386757
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Dynamic Equilibrium with Heterogeneous Agents and Risk Constraints
Prieto, Rodolfo - 2011
We examine the impact of risk-based portfolio constraints on asset prices in an exchange economy. Constrained agents scale down their portfolio and behave locally like power utility investors with risk aversion that depends on current market conditions. The imposition of constraints dampens...
Persistent link: https://www.econbiz.de/10013132941
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Market Selection and the Absence of Arbitrage
Elmiger, Sabine - 2021
A central conjecture of behavioural finance is that arbitrage opportunities appear as a result of systematic irrational investment behaviour and persist since real-world arbitrage trades actually involve costs and risks due to market frictions and non-fundamental risk. This paper shows that the...
Persistent link: https://www.econbiz.de/10013242357
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International capital markets with time-varying preferences
Curatola, Giuliano; Dergunov, Ilya - 2017
We propose a 2-country asset-pricing model where agents' preferences change endogenously as a function of the popularity of internationally traded goods. We determine the effect of the time-variation of preferences on equity markets, consumption and portfolio choices. When agents are more...
Persistent link: https://www.econbiz.de/10011698927
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International Capital Markets with Time-Varying Preferences
Curatola, Giuliano - 2017
We propose a 2-country asset-pricing model where agents' preferences change endogenously as a function of the popularity of internationally traded goods. We determine the effect of the time-variation of preferences on equity markets, consumption and portfolio choices. When agents are more...
Persistent link: https://www.econbiz.de/10012950589
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Generalized Euler Equation Errors for Discrete Time Dynamic Portfolio Choice Models
Dillschneider, Yannick - 2020
The solution to dynamic portfolio choice models can be formulated in terms of a value function by the Bellman principle of optimality, which reduces the multi-period optimal policy choice problem to a sequence of one-period maximization problems. For two adjacent periods, economists compute the...
Persistent link: https://www.econbiz.de/10012847882
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On securitization, market completion and equilibrium risk transfer
Horst, Ulrich; Pirvu, Traian A.; Reis, Gonçalo Dos - 2010
We propose an equilibrium framework within which to price financial securities written on non- tradable underlyings such as temperature indices. We analyze a financial market with a finite set of agents whose preferences are described by a convex dynamic risk measure generated by the solution of...
Persistent link: https://www.econbiz.de/10003952854