Risk-sharing and probabilistic network structure
AbstractThis paper studies the impact of a probabilistic risk-sharing network structure on the optimal portfolio composition. We show that, even assuming identical agents, we are able to differentiate their optimal risk-choice once we assume the link-structure defining their relationship probabilistic. In particular, the final agent's portfolio composition is function of his location in the network. If we assume positive asset-correlation coefficients, the relative location of a player in the graph influences his risk-behaviour as much as those of his direct and indirect partners in a not-straightforward way. We analyse also two potential "centrality measures" able to select the key-player in the risk-sharing network. The findings may help to select the "central" agent in a risk-sharing community and to forecast the risk-exposure of the players. Finally, this paper may explain natural differences between identical rational agents' choices emerging in a probabilistic network setup.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1214.
Date of creation: Sep 2012
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Find related papers by JEL classification:
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-IAS-2012-09-09 (Insurance Economics)
- NEP-NET-2012-09-09 (Network Economics)
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