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Systemic Optimal Risk Transfer Equilibrium

Author

Listed:
  • Francesca Biagini
  • Alessandro Doldi
  • Jean-Pierre Fouque
  • Marco Frittelli
  • Thilo Meyer-Brandis

Abstract

We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium (SORTE), which is inspired by the B\"uhlmann's classical notion of an Equilibrium Risk Exchange. We provide sufficient general assumptions that guarantee existence, uniqueness, and Pareto optimality of such a SORTE. In both the B\"uhlmann and the SORTE definition, each agent is behaving rationally by maximizing his/her expected utility given a budget constraint. The two approaches differ by the budget constraints. In B\"uhlmann's definition the vector that assigns the budget constraint is given a priori. On the contrary, in the SORTE approach, the vector that assigns the budget constraint is endogenously determined by solving a systemic utility maximization. SORTE gives priority to the systemic aspects of the problem, in order to optimize the overall systemic performance, rather than to individual rationality.

Suggested Citation

  • Francesca Biagini & Alessandro Doldi & Jean-Pierre Fouque & Marco Frittelli & Thilo Meyer-Brandis, 2019. "Systemic Optimal Risk Transfer Equilibrium," Papers 1907.04257, arXiv.org, revised Jun 2020.
  • Handle: RePEc:arx:papers:1907.04257
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    References listed on IDEAS

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    Cited by:

    1. Alessandro Doldi & Marco Frittelli, 2019. "Multivariate Systemic Optimal Risk Transfer Equilibrium," Papers 1912.12226, arXiv.org, revised Apr 2021.

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