We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk …-taking. News implying that a hedge is likely to be loss-making undermines the risk-prevention incentives of the protection seller …. This incentive problem limits the capacity to share risks and generates endogenous counterparty risk. Optimal hedging can …

Derivatives activity, motivated by risk-sharing, can breed risk-taking. Bad news about the risk of the asset underlying … the derivative increases the expected liability of a protection seller and undermines her risk-prevention incentives. This … limits risk-sharing, and may create endogenous counterparty risk and contagion from news about the hedged risk to the balance …

contributions in insurance economics since that time. The review begins with the role of utility, risk, and risk aversion in the …

the results from the model to cast light on (i) the conflicting empirical evidence on the risk-incentives tradeoff found …

disease. A costly prevention effort allows high-risk agents to decrease this probability. Agents are not obliged to take the … test, but must disclose its results to insurers, and taking the test is associated to a discrimination risk. We study the … discrimination risk …

We analyze the effect of counterparty risk on insurance contracts using the case of credit risk transfer in banking. In … the insurer can create an incentive for the insuree to reveal superior information about the risk of their "investment … problem and may not decrease counterparty risk. Our research suggests that regulators should be wary of risk being offloaded …