Insurance Policy Transformations and Optimal Portfolio Choice

Michael Ormiston ()
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Michael Ormiston: W. P. Carey School of Business Department of Economics, http://wpcarey.asu.edu/Directory/stafffaculty.cfm?cobid=1039542

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: The amount of wealth allocated to a particular risky asset depends on the riskiness of the asset. When an insurance policy against losses from holding the asset is made available, then this allocation can also depend on the form and the price of the insurance. The purpose of this research is to investigate the effects of the availability and the form of insurance on the demand for a risky asset. This is accomplished in the context of a portfolio model with a single risky asset and a riskless asset. Insurance policies and changes in insurance policies are represented as deterministic transformations. Theorems are presented detailing the comparative statics effects of an insurance policy transformation on the decision maker's welfare and on the amount allocated to the insured risky asset.

JEL-codes: D81 (search for similar items in EconPapers)

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