Risk sharing in an asymmetric environment

We study the effect of an asymmetric environment on risk sharing. In our model, entrepreneurs consider undertaking risky projects in the real sector as well as selling part of their projects to investors. To capture the idea of an asymmetric environment, the returns on the alternative risk-free inve...

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Main Authors: FESSELMEYER, Eric, MIRMAN, Leonard J., SANTUGINI, Marc
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Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/cis_research_all/6
https://ink.library.smu.edu.sg/context/cis_research_all/article/1005/viewcontent/1_s2.0_S1059056014000811_main.pdf
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spelling sg-smu-ink.cis_research_all-10052022-08-18T05:13:59Z Risk sharing in an asymmetric environment FESSELMEYER, Eric MIRMAN, Leonard J. SANTUGINI, Marc We study the effect of an asymmetric environment on risk sharing. In our model, entrepreneurs consider undertaking risky projects in the real sector as well as selling part of their projects to investors. To capture the idea of an asymmetric environment, the returns on the alternative risk-free investment are allowed to differ between the entrepreneurs and the investors, i.e., agents have different opportunity costs of participating in the risky projects. We first show that the presence of asymmetric options establishes links between the risk-free and risky sectors as well as between the real and financial sectors. In particular, an asymmetric environment implies that the amount of risk sharing depends on the risk-free rates and the expected return of the risky project. Moreover, the level of real investment also depends on the risk-free rates. Second, we show how different risk-free rates may encourage or discourage risk sharing, and even prevent risk sharing altogether. (C) 2014 Elsevier Inc. All rights reserved. 2014-11-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/cis_research_all/6 info:doi/10.1016/j.iref.2014.06.004 https://ink.library.smu.edu.sg/context/cis_research_all/article/1005/viewcontent/1_s2.0_S1059056014000811_main.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection College of Integrative Studies eng Institutional Knowledge at Singapore Management University Asymmetric options Financial markets Risk sharing Risky project Entrepreneurial and Small Business Operations Finance and Financial Management
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Asymmetric options
Financial markets
Risk sharing
Risky project
Entrepreneurial and Small Business Operations
Finance and Financial Management
spellingShingle Asymmetric options
Financial markets
Risk sharing
Risky project
Entrepreneurial and Small Business Operations
Finance and Financial Management
FESSELMEYER, Eric
MIRMAN, Leonard J.
SANTUGINI, Marc
Risk sharing in an asymmetric environment
description We study the effect of an asymmetric environment on risk sharing. In our model, entrepreneurs consider undertaking risky projects in the real sector as well as selling part of their projects to investors. To capture the idea of an asymmetric environment, the returns on the alternative risk-free investment are allowed to differ between the entrepreneurs and the investors, i.e., agents have different opportunity costs of participating in the risky projects. We first show that the presence of asymmetric options establishes links between the risk-free and risky sectors as well as between the real and financial sectors. In particular, an asymmetric environment implies that the amount of risk sharing depends on the risk-free rates and the expected return of the risky project. Moreover, the level of real investment also depends on the risk-free rates. Second, we show how different risk-free rates may encourage or discourage risk sharing, and even prevent risk sharing altogether. (C) 2014 Elsevier Inc. All rights reserved.
format text
author FESSELMEYER, Eric
MIRMAN, Leonard J.
SANTUGINI, Marc
author_facet FESSELMEYER, Eric
MIRMAN, Leonard J.
SANTUGINI, Marc
author_sort FESSELMEYER, Eric
title Risk sharing in an asymmetric environment
title_short Risk sharing in an asymmetric environment
title_full Risk sharing in an asymmetric environment
title_fullStr Risk sharing in an asymmetric environment
title_full_unstemmed Risk sharing in an asymmetric environment
title_sort risk sharing in an asymmetric environment
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/cis_research_all/6
https://ink.library.smu.edu.sg/context/cis_research_all/article/1005/viewcontent/1_s2.0_S1059056014000811_main.pdf
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