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PRODID:https://www.diw.de/de/diw_01.c.806339.de/veranstaltungen.html
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UID:diw_01.c.525180.en
LOCATION:Gustav-Schmoller-Raum,DIW Berlin im Quartier 110,3.3.002A,Anton-Wilhelm-Amo-Straße 58,10117 Berlin
SUMMARY:Optimal Margins and Equilibrium Prices
DESCRIPTION:12:00 - 13:15 // We study the interaction between contracting and equilibrium pricing when risk-averse hedgers purchase insurance from risk-neutral investors subject to moral hazard. Moral hazard limits risk-sharing. In the individually optimal contract, margins are called (after bad news) to improve risk-sharing. But margin calls depress the price of investors' assets, affecting other investors negatively. Because of this fire-sale externality, there is too much use of margins in the market equilibrium compared to the utilitarian optimum. Moreover, equilibrium multiplicity can arise: In a pessimistic equilibrium, hedgers who fear low prices request high margins to obtain more insurance. Large margin calls trigger large price drops, confirming initial pessimistic expectations. Finally, moral hazard generates endogenous market incompleteness, raises risk premia, and induces contagion between asset classes.
DTSTART;VALUE=DATE:20160511
DTEND;VALUE=DATE:20160511
DTSTAMP:20160107T230000Z
URL:https://www.diw.de/en/diw_01.c.525180.en/events/optimal_margins_and_equilibrium_prices.html
ORGANIZER;CN=Niels Aka:mailto:naka@diw.de
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