A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment

Keisuke Kizaki, Taiga Saito and Akihiko Takahashi
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Keisuke Kizaki: Graduate School of Economics, The University of Tokyo
Taiga Saito: Graduate School of Economics, The University of Tokyo
Akihiko Takahashi: Graduate School of Economics, The University of Tokyo

No CARF-F-551, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical exper-iments, we explicitly obtain agents' specific reinsurance prices with their stochastic discount factors (SDF), optimal life-cycle trading strategies, and endogenously determined expected returns of the risky asset in equilibrium. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.

Pages: 27
Date: 2022-12, Revised 2023-08
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