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Asymptotic Analysis of Risk Premia Induced by Law-Invariant Risk Measures

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  • Thomas Knispel
  • Roger J. A. Laeven
  • Gregor Svindland

Abstract

We analyze the limiting behavior of the risk premium associated with the Pareto optimal risk sharing contract in an infinitely expanding pool of risks under a general class of law-invariant risk measures encompassing rank-dependent utility preferences. We show that the corresponding convergence rate is typically only $n^{1/2}$ instead of the conventional $n$, with $n$ the multiplicity of risks in the pool, depending upon the precise risk preferences.

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  • Thomas Knispel & Roger J. A. Laeven & Gregor Svindland, 2021. "Asymptotic Analysis of Risk Premia Induced by Law-Invariant Risk Measures," Papers 2107.01730, arXiv.org.
    • Handle: RePEc:arx:papers:2107.01730
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    References listed on IDEAS

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