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Risk-sharing and probabilistic network structure

  • Marco Pelliccia

    (Department of Economics, Mathematics & Statistics, Birkbeck)

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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File URL: http://www.bbk.ac.uk/ems/research/wp/2012/PDFs/BWPEF1214.pdf
File Function: First version, 2012
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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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