Multi-period risk sharing under financial fairness

Hailong Bao, Eduard Ponds and Johannes Schumacher

Insurance: Mathematics and Economics, 2017, vol. 72, issue C, 49-66

Abstract: We work with a multi-period system where a finite number of agents need to share multiple monetary risks. We look for the solutions that are both Pareto efficient utility-wise and financially fair value-wise. A buffer enables the inter-temporal capital transfer. Expected utility is used to evaluate the utility, and a risk-neutral measure is essential for determining the risk sharing rules. It can be shown that in the model setting there always exists a unique risk sharing rule that is both Pareto efficient and financially fair. An iterative algorithm is introduced to calculate this rule numerically.

Keywords: Intertemporal risk sharing; Pareto efficiency; Financial fairness; Contract design; Collective pension funds (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Working Paper: Multi-Period Risk Sharing under Financial Fairness (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:72:y:2017:i:c:p:49-66

DOI: 10.1016/j.insmatheco.2016.10.015

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