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Optimal risk sharing with background risk

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  • Dana, Rose-Anne
  • Scarsini, Marco

Abstract

This paper examines qualitative properties of efficient insurance contracts in the presence of background risk. In order to get results for all strictly risk-averse expected utility maximizers, the concept of “stochastic increasingness” is used. Different assumptions on the stochastic dependence between the insurable and uninsurable risk lead to different qualitative properties of the efficient contracts. The new results obtained under hypotheses of dependent risks are compared to classical results in the absence of background risk or to the case of independent risks. The theory is further generalized to nonexpected utility maximizers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 133 (2007)
Issue (Month): 1 (March)
Pages: 152-176

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Handle: RePEc:eee:jetheo:v:133:y:2007:i:1:p:152-176

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Web page: http://www.elsevier.com/locate/inca/622869

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Citations

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Cited by:
  1. Mario Menegatti, 2009. "Optimal saving in the presence of two risks," Journal of Economics, Springer, vol. 96(3), pages 277-288, April.
  2. Moshe Levy & Adi Rizansky, 2014. "Market failure in the pharmaceutical industry and how it can be overcome: the CureShare mechanism," The European Journal of Health Economics, Springer, vol. 15(2), pages 143-156, March.
  3. Michail Anthropelos & Gordan Zitkovic, 2008. "On Agents' Agreement and Partial-Equilibrium Pricing in Incomplete Markets," Papers 0803.2198, arXiv.org.
  4. Asimit, Alexandru V. & Badescu, Alexandru M. & Cheung, Ka Chun, 2013. "Optimal reinsurance in the presence of counterparty default risk," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 690-697.
  5. Guenter Franke & Harris Schlesinger & Richard C. Stapleton, 2013. "Risk-Taking-Neutral Background Risk," CESifo Working Paper Series 4070, CESifo Group Munich.
  6. Beatrice Acciaio, 2007. "Optimal risk sharing with non-monotone monetary functionals," Finance and Stochastics, Springer, vol. 11(2), pages 267-289, April.
  7. Biffis, Enrico & Blake, David, 2010. "Securitizing and tranching longevity exposures," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 186-197, February.
  8. Carlier, G. & Dana, R.-A., 2005. "Rearrangement inequalities in non-convex insurance models," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 483-503, August.
  9. Tan, Ken Seng & Weng, Chengguo & Zhang, Yi, 2011. "Optimality of general reinsurance contracts under CTE risk measure," Insurance: Mathematics and Economics, Elsevier, vol. 49(2), pages 175-187, September.
  10. Lu, ZhiYi & Liu, LePing & Zhang, JianYu & Meng, LiLi, 2012. "Optimal insurance under multiple sources of risk with positive dependence," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 462-471.
  11. Ekeland, Ivar & Schachermayer, Walter, 2011. "Law invariant risk measures on L∞ (ℝd)," Economics Papers from University Paris Dauphine 123456789/9738, Paris Dauphine University.
  12. Damir Filipović & Gregor Svindland, 2008. "Optimal capital and risk allocations for law- and cash-invariant convex functions," Finance and Stochastics, Springer, vol. 12(3), pages 423-439, July.
  13. Kei Fukuda & Akihiko Inoue & Yumiharu Nakano, 2007. "Optimal intertemporal risk allocation applied to insurance pricing," Papers 0711.1143, arXiv.org, revised Nov 2007.
  14. Burgert, Christian & Rüschendorf, Ludger, 2008. "Allocation of risks and equilibrium in markets with finitely many traders," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 177-188, February.
  15. Ghossoub, Mario, 2011. "Monotone equimeasurable rearrangements with non-additive probabilities," MPRA Paper 37629, University Library of Munich, Germany, revised 23 Mar 2012.

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