Multi-Period Risk Sharing under Financial Fairness

Hailong Bao, Eduard Ponds, Hans Schumacher

Research output: Working paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
Number of pages40
Publication statusSubmitted - 2015

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Pareto
Fairness
Sharing rule
Risk sharing
Expected utility
Risk-neutral measure
Fair value
Buffer

Cite this

Bao, H., Ponds, E., & Schumacher, H. (2015). Multi-Period Risk Sharing under Financial Fairness. Tilburg.
Bao, Hailong ; Ponds, Eduard ; Schumacher, Hans. / Multi-Period Risk Sharing under Financial Fairness. Tilburg, 2015.
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Multi-Period Risk Sharing under Financial Fairness. / Bao, Hailong; Ponds, Eduard; Schumacher, Hans.

Tilburg, 2015.

Research output: Working paperOther research output

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AB - 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.

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