Insuring against the shortfall risk associated with real options

Insuring against the shortfall risk associated with real options

Abstract: Given two assets Sand B with price processes two correlated geometric Brownian motions S. = (Stk::o, B. = (Sdt~o and a bond B. Suppose that we can only observe B. and can only trade in B. and B or equivalently buy options on B. at time T = O. Suppose further that we want to hedge an arbitrary binary option H depending on ST; i.e. H = l{sTEA}' Under these conditions it is shown that th...

Insuring Student Loans Against the Risk of College Failure

Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). We examine whether insurance against college-failure risk can be offered, taking into account moral hazard and adverse selection. To do so, we develop a model ...

Insuring Consumption Against Illness.

One of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness. We investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from Indonesia that combines excellent measures of health status with consumption information. We find that there are significant economic costs asso...

State health risk pools: insuring the 'uninsurable'.

Insuring College Failure Risk

Under current law, participants in (college) student loan program must repay their loan in full regardless of whether they complete college. Dropout rate among college students from low-income background is anywhere between 33 to 50 percent. The combination of lack of family resources, unconstrained access to student loans and high dropout rates means that for a substantial fraction of low-inco...