IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Implications of Dynamic Trading for Insurance Markets

  • Jose S. Penalva Zuasti
Registered author(s):

    We study the interaction between insurance and capital markets within a single but general framework. We show that capital markets greatly enhance the risk sharing capacity of insurance markets and the scope of risks that are insurable because efficiency does not depend on the number of agents at risk, nor on risks being independent, nor on the preferences and endowments of agents at risk being the same. We show that agents share risks by buying full coverage for their individual risks and provide insurance capital through stock markets. We show that aggregate risk enters private insurance as a positive loading on insurance prices and despite that agents will buy full coverage. The loading is determined by the risk premium of investors in the stock market and hence does not depend on the agent's willingness to pay. Agents provide insurance capital by trading an equally weighted portfolio of insurance company shares and a riskless asset. We are able to construct agents' optimal trading strategies explicitly and for very general preferences.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://research.barcelonagse.eu/tmp/working_papers/83.pdf
    Download Restriction: no

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 83.

    as
    in new window

    Length:
    Date of creation: Nov 2003
    Date of revision:
    Handle: RePEc:bge:wpaper:83
    Contact details of provider: Postal: Ramon Trias Fargas, 25-27, 08005 Barcelona
    Phone: +34 93 542-1222
    Fax: +34 93 542-1223
    Web page: http://www.barcelonagse.eu
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Doherty, Neil A & Schlesinger, Harris, 1983. "Optimal Insurance in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1045-54, December.
    2. Doherty, N.A. & Dionne, G., 1989. "Risk Pooling, Contract Structure and Organizational Form of Insurance Firms," Cahiers de recherche 8935, Universite de Montreal, Departement de sciences economiques.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:83. 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: (Bruno Guallar)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.