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A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment

Author

Listed:
  • Keisuke Kizaki

    (Graduate School of Economics, The University of Tokyo)

  • Taiga Saito

    (Graduate School of Economics, The University of Tokyo)

  • Akihiko Takahashi

    (Graduate School of Economics, The University of Tokyo)

Abstract

This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical exper-iments, we explicitly obtain agents' specific reinsurance prices with their stochastic discount factors (SDF), optimal life-cycle trading strategies, and endogenously determined expected returns of the risky asset in equilibrium. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.

Suggested Citation

  • Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2022. "A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment," CARF F-Series CARF-F-551, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Aug 2023.
    • Handle: RePEc:cfi:fseres:cf551
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    References listed on IDEAS

    as
    1. Becherer, Dirk, 2003. "Rational hedging and valuation of integrated risks under constant absolute risk aversion," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 1-28, August.
    2. Jin Choi & Kasper Larsen, 2015. "Taylor approximation of incomplete Radner equilibrium models," Finance and Stochastics, Springer, vol. 19(3), pages 653-679, July.
    3. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2022. "Multi-agent Robust Optimal Investment Problem in Incomplete Market," CIRJE F-Series CIRJE-F-1198, CIRJE, Faculty of Economics, University of Tokyo.
    4. Massimo Arnone & Michele Leonardo Bianchi & Anna Grazia Quaranta & Gian Luca Tassinari, 2021. "Catastrophic risks and the pricing of catastrophe equity put options," Computational Management Science, Springer, vol. 18(2), pages 213-237, June.
    5. Henderson, Vicky, 2005. "Explicit solutions to an optimal portfolio choice problem with stochastic income," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1237-1266, July.
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