Agents' Strategic Behavior in Optimal Risk Sharing
AbstractWe consider the market of n financial agents who aim to increase their utilities by efficiently sharing their random endowments. Given the endogenously derived optimal sharing rules, we address the situation where agents do not reveal their true endowments, but instead they report as endowments the random quantities that maximize their utilities when the sharing rules are applied. Under mean-variance preferences, it is shown that each agent should share only a fraction of his true endowment and report that he is exposed to some endowment he does not possess. Furthermore, if all agents follow similar strategic behavior, the market equilibrates at a Nash-type equilibrium which benefits the speculators and results in risk sharing inefficiency. This agents' strategic behavior, when applied to oligopoly markets of exogenously given financial securities, changes the effective market portfolio and implies a price pressure on the traded securities in the CAPM.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1206.0384.
Date of creation: Jun 2012
Date of revision: Mar 2013
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tessa Bold, 2009. "Implications of Endogenous Group Formation for Efficient Risk-Sharing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(536), pages 562-591, 03.
- Mingxin Xu, 2006.
"Risk measure pricing and hedging in incomplete markets,"
Annals of Finance, Springer,
Springer, vol. 2(1), pages 51-71, January.
- Mingxin Xu, 2004. "Risk Measure Pricing and Hedging in Incomplete Markets," Finance, EconWPA 0406004, EconWPA, revised 06 Apr 2005.
- Napp, Clotilde & Malamud, Semyon & Jouini, ElyÃ¨s & Cvitanic, Jaksa, 2012.
"Financial Markets Equilibrium with Heterogeneous Agents,"
Economics Papers from University Paris Dauphine
123456789/4724, Paris Dauphine University.
- Jaksa Cvitanic & ElyÃ¨s Jouini & Semyon Malamud & Clotilde Napp, 2011. "Financial Markets Equilibrium with Heterogeneous Agents," Review of Finance, European Finance Association, European Finance Association, vol. 16(1), pages 285-321.
- Jaksa Cvitanic & ElyÃ¨s Jouini & Semyon Malamud & Clotilde Napp, 2012. "Financial Markets Equilibrium with Heterogeneous Agents," Post-Print halshs-00488537, HAL.
- Michail Anthropelos & Gordan Zitkovic, 2008. "On Agents' Agreement and Partial-Equilibrium Pricing in Incomplete Markets," Papers 0803.2198, arXiv.org.
- Zhao, Rui R., 2007. "Dynamic risk-sharing with two-sided moral hazard," Journal of Economic Theory, Elsevier, Elsevier, vol. 136(1), pages 601-640, September.
- Damir FilipoviÄ‡ & Michael Kupper, 2008. "Equilibrium Prices For Monetary Utility Functions," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 325-343.
- Michail Anthropelos & Gordan Å½itkoviÄ‡, 2010. "Partial equilibria with convex capital requirements: existence, uniqueness and stability," Annals of Finance, Springer, Springer, vol. 6(1), pages 107-135, January.
- E. Jouini & W. Schachermayer & N. Touzi, 2008.
"Optimal Risk Sharing For Law Invariant Monetary Utility Functions,"
Mathematical Finance, Wiley Blackwell,
Wiley Blackwell, vol. 18(2), pages 269-292.
- ElyÃ¨s Jouini & Walter Schachermayer & Nizar Touzi, 2007. "Optimal Risk Sharing for Law Invariant Monetary Utility Functions," Working Papers halshs-00176606, HAL.
- Damir FilipoviÄ‡ & 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.
- Garance Genicot & Debraj Ray, 2003.
"Group Formation in Risk--Sharing Arrangements,"
Review of Economic Studies, Wiley Blackwell,
Wiley Blackwell, vol. 70(1), pages 87-113, January.
- Ulrich Horst & Traian A. Pirvu & Gonçalo Dos Reis, 2010. "On Securitization, Market Completion and Equilibrium Risk Transfer," SFB 649 Discussion Papers SFB649DP2010-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Pauline Barrieu & Nicole El Karoui, 2005. "Inf-convolution of risk measures and optimal risk transfer," Finance and Stochastics, Springer, vol. 9(2), pages 269-298, 04.
- Ulrich Horst & Santiago Moreno-Bromberg, 2011.
"Efficiency and Equilibria in Games of Optimal Derivative Design,"
- Ulrich Horst & Santiago Moreno-Bromberg, 2010. "Efficiency and Equilibria in Games of Optimal Derivative Design," SFB 649 Discussion Papers SFB649DP2010-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 9(3), pages 203-228.
- Jouini, ElyÃ¨s & Schachermayer, Walter & Touzi, Nizar, 2008. "Optimal Risk Sharing for Law Invariant Monetary Utility Functions," Economics Papers from University Paris Dauphine 123456789/361, Paris Dauphine University.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.