On the Application of the Continuous-Time Theory of Finance to Financial Intermediation and Insurance *

@inproceedings{Merton2008OnTA,
  title={On the Application of the Continuous-Time Theory of Finance to Financial Intermediation and Insurance *},
  author={R. C. Merton},
  year={2008}
}
The core of financial economic theory is the study of the micro behavior of agents in the intertemporal deployment of their resources in an environment of uncertainty. Economic organizations are regarded as existing primarily to facilitate these allocations and are, therefore, endogenous to the theory. From within the permeable and flexible boundaries of this core, I choose on this occasion to explore the risk-pooling and risk-sharing roles of financial intermediaries and to derive some of the… CONTINUE READING