Details
| Original language | English |
|---|---|
| Pages (from-to) | 182-195 |
| Number of pages | 14 |
| Journal | Insurance: Mathematics and Economics |
| Volume | 70 |
| Publication status | Published - Sept 2016 |
| Externally published | Yes |
Abstract
We consider the problem of optimal risk sharing in a pool of cooperative agents. We analyze the asymptotic behavior of the certainty equivalents and risk premia associated with the Pareto optimal risk sharing contract as the pool expands. We first study this problem under expected utility preferences with an objectively or subjectively given probabilistic model. Next, we develop a robust approach by explicitly taking uncertainty about the probabilistic model (ambiguity) into account. The resulting robust certainty equivalents and risk premia compound risk and ambiguity aversion. We provide explicit results on their limits and rates of convergence, induced by Pareto optimal risk sharing in expanding pools.
Keywords
- Ambiguity, Convex risk measures, Large pools, Pareto optimality, Risk premia, Risk sharing, Robust preferences
ASJC Scopus subject areas
- Mathematics(all)
- Statistics and Probability
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Decision Sciences(all)
- Statistics, Probability and Uncertainty
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In: Insurance: Mathematics and Economics, Vol. 70, 09.2016, p. 182-195.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Robust optimal risk sharing and risk premia in expanding pools
AU - Knispel, Thomas
AU - Laeven, R.J.A.
AU - Svindland, Gregor
N1 - Publisher Copyright: © 2016 Elsevier B.V.
PY - 2016/9
Y1 - 2016/9
N2 - We consider the problem of optimal risk sharing in a pool of cooperative agents. We analyze the asymptotic behavior of the certainty equivalents and risk premia associated with the Pareto optimal risk sharing contract as the pool expands. We first study this problem under expected utility preferences with an objectively or subjectively given probabilistic model. Next, we develop a robust approach by explicitly taking uncertainty about the probabilistic model (ambiguity) into account. The resulting robust certainty equivalents and risk premia compound risk and ambiguity aversion. We provide explicit results on their limits and rates of convergence, induced by Pareto optimal risk sharing in expanding pools.
AB - We consider the problem of optimal risk sharing in a pool of cooperative agents. We analyze the asymptotic behavior of the certainty equivalents and risk premia associated with the Pareto optimal risk sharing contract as the pool expands. We first study this problem under expected utility preferences with an objectively or subjectively given probabilistic model. Next, we develop a robust approach by explicitly taking uncertainty about the probabilistic model (ambiguity) into account. The resulting robust certainty equivalents and risk premia compound risk and ambiguity aversion. We provide explicit results on their limits and rates of convergence, induced by Pareto optimal risk sharing in expanding pools.
KW - Ambiguity
KW - Convex risk measures
KW - Large pools
KW - Pareto optimality
KW - Risk premia
KW - Risk sharing
KW - Robust preferences
UR - http://www.scopus.com/inward/record.url?scp=84990059382&partnerID=8YFLogxK
U2 - 10.1016/j.insmatheco.2016.05.012
DO - 10.1016/j.insmatheco.2016.05.012
M3 - Article
VL - 70
SP - 182
EP - 195
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
SN - 0167-6687
ER -