Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253521 
Year of Publication: 
2022
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 17 [Issue:] 1 [Publisher:] The Econometric Society [Place:] New Haven, CT [Year:] 2022 [Pages:] 121-152
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
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.
Subjects: 
Securitization
heterogeneous beliefs
collateral
tranching
pooling
JEL: 
D53
G20
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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