Intermediation and Value Creation in an Incomplete Market: Implications for Securitization
This paper studies the impact of financial innovations on real investment decisions within the framework of an incomplete market economy comprised of firms, investors, and an intermediary. The firms face unique investment opportunities that can be undertaken at given reservation prices. The cash flows thus generated are not spanned by the securities traded in the financial market, and cannot be valued uniquely. The intermediary purchases claims against these cash flows, pools them together, and sells tranches of primary or secondary securities to the investors. We derive necessary and sucient conditions under which additional projects are undertaken due to the intermediary’s actions, and firms are amenable to the pool proposed by the intermediary compared to the no-investment option or the option of forming alternative pools. We also determine the structure of the new securities created by the intermediary, and identify how it exploits the arbitrage opportunities available in the market. This structure is a function of the cash flows available, and in turn, determines the size of the asset pool, and thus, value creation due to the additional projects that are financed.
Incomplete markets Securitization Financial innovation Arbitrage-free pricing
Vishal Gaur Sridhar Seshadri Marti G. Subrahmanyam
Leonard N. Stern School of Business, New York University, 44 West 4th St., New York, NY 10012
国际会议
昆明
英文
1-45
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）