Mainly agree—but don’t forget aggregation. You can get rid of risk even if everyone is risk-averse, just by replacing “whole ownership of few risky contracts” with “partial ownership of many risky contracts”.
In the example in this post, if I own LH and you own LT, and we are both risk averse, we gain from trading half our contracts to each other.
Mainly agree—but don’t forget aggregation. You can get rid of risk even if everyone is risk-averse, just by replacing “whole ownership of few risky contracts” with “partial ownership of many risky contracts”.
In the example in this post, if I own LH and you own LT, and we are both risk averse, we gain from trading half our contracts to each other.