On securitization, market completion and equilibrium risk transfer

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2010,010

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Incomplete Markets ; Existence and Stability Conditions of Equilibrium ; Computable General Equilibrium Models
• Subject: Backward stochastic differential equations ; dynamic risk measures ; partial equilibrium ; equilibrium pricing ; market completion ; Securitization ; Portfolio-Management ; Unvollkommener Markt ; Optionspreistheorie ; Gleichgewicht ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Horst, Ulrich ; Pirvu, Traian A. ; Dos Reis, Gonçalo
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/39280
• Last update: 10.03.2025, 11:44 AM CET