IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v1y2013i2p57-80d28886.html
   My bibliography  Save this article

A Welfare Analysis of Capital Insurance

Author

Listed:
  • Ekaterina Panttser

    () (Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA)

  • Weidong Tian

    () (Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA)

Abstract

This paper presents a welfare analysis of several capital insurance programs in a rational expectation equilibrium setting. We first explicitly characterize the equilibrium of each capital insurance program. Then, we demonstrate that a capital insurance program based on aggregate loss is better than classical insurance, when big financial institutions have similar expected loss exposures. By contrast, classical insurance is more desirable when the bank’s individual risk is consistent with the expected loss in a precise way. Our analysis shows that a capital insurance program is a useful tool to hedge systemic risk from the regulatory perspective.

Suggested Citation

  • Ekaterina Panttser & Weidong Tian, 2013. "A Welfare Analysis of Capital Insurance," Risks, MDPI, Open Access Journal, vol. 1(2), pages 1-24, September.
  • Handle: RePEc:gam:jrisks:v:1:y:2013:i:2:p:57-80:d:28886
    as

    Download full text from publisher

    File URL: http://www.mdpi.com/2227-9091/1/2/57/pdf
    Download Restriction: no

    File URL: http://www.mdpi.com/2227-9091/1/2/57/
    Download Restriction: no

    References listed on IDEAS

    as
    1. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, pages 236-249.
    2. Youngna Choi & Raphael Douady, 2012. "Financial crisis dynamics: attempt to define a market instability indicator," Quantitative Finance, Taylor & Francis Journals, pages 1351-1365.
    3. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, pages 84-96.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    capital insurance; welfare; equilibrium;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:1:y:2013:i:2:p:57-80:d:28886. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team). General contact details of provider: http://www.mdpi.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.