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

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  • Kizaki, Keisuke
  • Saito, Taiga
  • Takahashi, Akihiko

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 experiments, we explicitly obtain endogenously determined expected returns of the risky asset in equilibrium, agents' specific reinsurance prices with their stochastic discount factors (SDF) and optimal life-cycle trading strategies. 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.

Suggested Citation

  • Kizaki, Keisuke & Saito, Taiga & Takahashi, Akihiko, 2024. "A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 132-155.
    • Handle: RePEc:eee:insuma:v:114:y:2024:i:c:p:132-155
    DOI: 10.1016/j.insmatheco.2023.11.006
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    References listed on IDEAS

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    1. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2022. "Multi-agent Robust Optimal Investment Problem in Incomplete Market," CIRJE F-Series CIRJE-F-1198, CIRJE, Faculty of Economics, University of Tokyo.
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    Cited by:

    1. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2024. "Multi-agent Equilibrium Model with Heterogeneous Views on Fundamental Risks in Incomplete Market," CARF F-Series CARF-F-578, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2024. "Multi-agent Equilibrium Model with Heterogeneous Views on Fundamental Risks in Incomplete Market," CIRJE F-Series CIRJE-F-1224, CIRJE, Faculty of Economics, University of Tokyo.

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    More about this item

    Keywords

    Incomplete market; Multi-agent model; Equilibrium model; Reinsurance pricing; Life-cycle investment;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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