Insurance with frequent trading

José Penalva

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper looks at the dynamic management of risk in an economy with discrete time consumption and endowments and continuous trading. I study how agents in such an economy deal with all the risk in the economy and attain their Pareto optimal allocations by trading in a few natural securities: private insurance contracts and a common set of derivatives on the aggregate endowment. The parsimonious nature of the implied securities needed for Pareto optimality suggests that in such contexts complete markets is a very reasonable assumption.

Keywords: Risk-sharing; insurance; hedging; point-processes; complete markets; general equilibrium (search for similar items in EconPapers)
JEL-codes: D81 D99 G11 (search for similar items in EconPapers)
Date: 1997-10, Revised 1999-03
New Economics Papers: this item is included in nep-ias and nep-mic
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