On Securitization, Market Completion and Equilibrium Risk Transfer
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 a backward stochastic differential equation. The agents are exposed to financial and non-financial risk factors. They can hedge their financial risk in the stock market and trade a structured derivative whose payoff depends on both financial and external risk factors. We prove an existence and uniqueness of equilibrium result for derivative prices and characterize the equilibrium market price of risk in terms of a solution to a non-linear BSDE.
|Date of creation:||Feb 2010|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2010-010. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team)
If references are entirely missing, you can add them using this form.