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Risk-sharing and probabilistic network structure

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  • Marco Pelliccia

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

This 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 Info

Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1214.

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Date of creation: Sep 2012
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Handle: RePEc:bbk:bbkefp:1214

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Keywords: informal insurance; risk-sharing; network;

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  18. Gert Sabidussi, 1966. "The centrality index of a graph," Psychometrika, Springer, vol. 31(4), pages 581-603, December.
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