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Multi-period risk sharing under financial fairness

Author

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  • Bao, Hailong
  • Ponds, Eduard H.M.
  • Schumacher, Johannes M.

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.

Suggested Citation

  • Bao, Hailong & Ponds, Eduard H.M. & Schumacher, Johannes M., 2017. "Multi-period risk sharing under financial fairness," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 49-66.
    • Handle: RePEc:eee:insuma:v:72:y:2017:i:c:p:49-66
    DOI: 10.1016/j.insmatheco.2016.10.015
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    Cited by:

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