This paper takes an additional step towards analyzing the demand for insurance in the context of a portfolio model. An investor is endowed with a portfolio containing a risky and riskless asset, that can be augmented by purchasing insurance. Here, insurance is paid for by reducing the quantity...

Holding more of the riskless asset and insuring the risky asset are two ways to reduce portfolio risk. These methods can be employed jointly. As a result, the amount of insurance selected to indemnify against possible losses from holding a risky asset depends, in general, on the quantities of...