Economics, Econometrics and Finance
8 years ago

Incomplete insurance markets drive trading of derivative assets, impacting risk sharing.

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Incomplete markets and derivative assets
François Le Grand, Xavier Ragot

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Derivative assets like options can help people share risks in an economy where insurance markets are incomplete. This study looks at how these assets are traded when people face different types of risks. The researchers found that incomplete insurance markets can explain why certain derivative assets are traded more in these situations.