Multi-period risk sharing under financial fairness

Hailong Bao, Eduard Ponds, Hans Schumacher

Research output: Contribution to journalArticleScientificpeer-review

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
Pages (from-to)49-66
JournalInsurance: Mathematics & Economics
Volume72
DOIs
Publication statusPublished - Jan 2017

Fingerprint

Risk Sharing
Fairness
Pareto
Expected Utility
Iterative Algorithm
Buffer
Calculate
Evaluate
Sharing rule
Risk sharing
Model
Expected utility
Risk-neutral measure
Fair value

Keywords

  • intertemporal risk sharing
  • Pareto efficiency
  • financial fairness
  • contract design
  • collective pension funds

Cite this

Bao, Hailong ; Ponds, Eduard ; Schumacher, Hans. / Multi-period risk sharing under financial fairness. In: Insurance: Mathematics & Economics. 2017 ; Vol. 72. pp. 49-66.
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Multi-period risk sharing under financial fairness. / Bao, Hailong; Ponds, Eduard; Schumacher, Hans.

In: Insurance: Mathematics & Economics, Vol. 72, 01.2017, p. 49-66.

Research output: Contribution to journalArticleScientificpeer-review

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