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Peer effect and dynamic ALM games among insurers

Author

Listed:
  • Chao Deng

    (Guangdong University of Foreign Studies)

  • Xizhi Su

    (National University of Singapore)

  • Chao Zhou

    (National University of Singapore)

Abstract

Technology advances have enhanced competition in insurance industry. This paper investigates a class of dynamic asset and liability management(ALM) games among insurers with mean-variance of relative log return performance. We obtain the unique time-consistent equilibrium ALM strategies explicitly. The results show that competition leads to the increases of insurers risky asset investment and the insurance liability. The equilibrium solution implies that social utility(relative concerns) leads to social learning(herd effect) in the complete information market. In particular, the peer relative concern can induce preference interaction. We find the Granger causal relationship between industry competition and herd behavior in the empirical data. Finally, we conduct sensitivity analysis of the competition outcome with respect to risk parameters.

Suggested Citation

  • Chao Deng & Xizhi Su & Chao Zhou, 2024. "Peer effect and dynamic ALM games among insurers," Mathematics and Financial Economics, Springer, volume 18, number 11, December.
    • Handle: RePEc:spr:mathfi:v:18:y:2024:i:2:d:10.1007_s11579-024-00365-z
    DOI: 10.1007/s11579-024-00365-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Peer effect; Asset and liability management; Time inconsistent; Nash equilibrium;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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