Robust optimal risk sharing and risk premia in expanding pools
Thomas Knispel,
Roger Laeven and
Gregor Svindland
Insurance: Mathematics and Economics, 2016, vol. 70, issue C, 182-195
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: Risk sharing; Pareto optimality; Large pools; Ambiguity; Robust preferences; Convex risk measures; Risk premia (search for similar items in EconPapers)
JEL-codes: D81 G10 G20 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)
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Working Paper: Robust Optimal Risk Sharing and Risk Premia in Expanding Pools (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:70:y:2016:i:c:p:182-195
DOI: 10.1016/j.insmatheco.2016.05.012
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