Holding more of the riskless asset and insuring the risky asset are two ways to reduce portfolio risk. These methods can be employed jointly. As a result, the amount of insurance selected to indemnify against possible losses from holding a risky asset depends, in general, on the quantities of...

This paper takes an additional step towards analyzing the demand for insurance in the context of a portfolio model. An investor is endowed with a portfolio containing a risky and riskless asset, that can be augmented by purchasing insurance. Here, insurance is paid for by reducing the quantity...