higher risk-adjusted returns than riskier assets. Consuming the high risk-adjusted returns of safer assets requires leverage …, creating an opportunity for investors with the ability to apply leverage. Risk parity portfolios exploit this opportunity by … equalizing the risk allocation across asset classes, thus overweighting safer assets relative to their weight in the market …

This article reviews the principal features of structured finance instruments. Key to understanding the risk properties … modelling of the credit risk of the underlying asset pools. It is argued that structured finance ratings, though useful, have … intrinsic limitations in fully gauging the risk of these products, even as their complexity creates incentives to rely more …

This paper investigates the interdependence between the risk-pooling activity of the financial sector and: output …, consumption, risk-free rate, and Sharpe ratio in a dynamic general equilibrium model of a productive economy. Due to their … to mitigate their risk through a financial sector. The financial sector pools risky claims issued by different firms …

This paper studies the impact of financial sector size and leverage on business cycles and risk-free rates dynamics. We … model a general equilibrium productive economy where financial intermediaries provide costly risk mitigation to households … intermediaries' relative size, but may also mitigate the business cycle. Moreover, it makes risk-free rates pro-cyclical. Households …