We investigate the importance of aggregate and consumer-specific or idiosyncratic labour income risk for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of labour income risk on consumption changes is decomposed into an aggregate and into an...

Customizing the optimal derivative written on an “instrument” risk to hedge an exogenous pecuniary risk is only examined in a few works assuming specific objective function and/or distribution of the risks. We show that this problem is closely-related to a previously un-examined...