Journal article
BILATERAL RISK SHARING WITH HETEROGENEOUS BELIEFS AND EXPOSURE CONSTRAINTS
ASTIN Bulletin : The Journal of the IAA, Vol.50(1), pp.293-323
01/01/2020
DOI: 10.1017/asb.2019.39
Abstract
This paper studies bilateral risk sharing under no aggregate uncertainty, where one agent has Expected-Utility preferences and the other agent has Rank-dependent utility preferences with a general probability distortion function. We impose exogenous constraints on the risk exposure for both agents, and we allow for any type or level of belief heterogeneity. We show that Pareto-optimal risk-sharing contracts can be obtained via a constrained utility maximization under a participation constraint of the other agent. This allows us to give an explicit characterization of optimal risk-sharing contracts. In particular, we show that an optimal risk-sharing contract contains allocations that are monotone functions of the likelihood ratio, where the latter is obtained from Lebesgue's Decomposition Theorem.
Details
- Title: Subtitle
- BILATERAL RISK SHARING WITH HETEROGENEOUS BELIEFS AND EXPOSURE CONSTRAINTS
- Creators
- Tim J. Boonen - University of AmsterdamMario Ghossoub - University of Waterloo
- Resource Type
- Journal article
- Publication Details
- ASTIN Bulletin : The Journal of the IAA, Vol.50(1), pp.293-323
- DOI
- 10.1017/asb.2019.39
- ISSN
- 0515-0361
- eISSN
- 1783-1350
- Publisher
- Cambridge Univ Press
- Number of pages
- 31
- Grant note
- 2018-03961 / Natural Sciences and Engineering Research Council of Canada (NSERC)
- Language
- English
- Date published
- 01/01/2020
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179851602771
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