Equilibrium securitization with diverse beliefs

Andrew Ellis, Michele Piccione, Shengxing Zhang

We study the effects of diverse beliefs on equilibrium securitization under risk neutrality. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of the traders' diverse beliefs about asset returns. The issuer of securities tranches the asset pool, and traders sort among the tranches according to their beliefs. We show how the traders' disagreement about the correlation of asset returns is a key factor in determining which assets are pooled.

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Year of publication:	2022
Authors:	Ellis, Andrew ; Piccione, Michele ; Zhang, Shengxing
Published in:	Theoretical economics : TE ; an open access journal in economic theory. - Toronto : [Verlag nicht ermittelbar], ISSN 1555-7561, ZDB-ID 2220447-7. - Vol. 17.2022, 1, p. 121-152
Subject:	Securitization \| heterogeneous beliefs \| collateral \| tranching \| pooling \| Theorie \| Theory \| Verbriefung \| Kreditsicherung \| Collateral \| Erwartungsbildung \| Expectation formation \| Asset-Backed Securities \| Asset-backed securities \| CAPM \| Allgemeines Gleichgewicht \| General equilibrium

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Type of publication:	Article
Type of publication (narrower categories):	Aufsatz in Zeitschrift ; Article in journal
Language:	English
Other identifiers:	10.3982/TE4157 [DOI] hdl:10419/253521 [Handle]
Classification:	D53 - Financial Markets ; G20 - Financial Institutions and Services. General
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012806923