Economics at your fingertips  

Incomplete markets and derivative assets

François Grand and Xavier Ragot ()
Additional contact information
François Grand: EMLyon Business School

Economic Theory, 2016, vol. 62, issue 3, 517-545

Abstract: Abstract We analyze derivative asset trading in an economy in which agents face both aggregate and uninsurable idiosyncratic risks. Insurance markets are incomplete for idiosyncratic risk and, possibly, for aggregate risk as well. However, agents can exchange insurance against aggregate risk through derivative assets such as options. We present a tractable framework, which allows us to characterize the extent of risk sharing in this environment. We show that incomplete insurance markets can explain some properties of the volume of traded derivative assets, which are difficult to explain in complete market economies.

Keywords: Incomplete markets; Heterogeneous agent models; Imperfect risk sharing; Derivative assets (search for similar items in EconPapers)
JEL-codes: G1 G12 E44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Incomplete markets and derivative assets (2016)
Working Paper: Incomplete markets and derivative assets (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-11-22
Handle: RePEc:spr:joecth:v:62:y:2016:i:3:d:10.1007_s00199-015-0912-9