Pooling and tranching under belief disagreement
Permanent Link
https://hdl.handle.net/2144/38159Version
First author draft
Citation (published version)
Juan Ortner, Martin C Schmalz. 2018. "Pooling and Tranching Under Belief Disagreement."Abstract
We study optimal security design when issuer and market participants disagree
about the characteristics of the underlying asset. We show that pooling and tranching
assets can be preferable to selling optimal securities backed by individual assets: pooling can be a response to belief disagreement between issuer and investors; tranching
allows the issuer to exploit belief disagreement among investors. Moreover, differences
in beliefs can make pooling and tranching complements; asymmetric information alone
cannot.
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