Pooling and tranching under belief disagreement
Files
First author draft
Date
2019-04-06
DOI
Authors
Ortner, Juan
Schmalz, Martin C.
Version
First author draft
OA Version
Citation
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.