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Pooling, Pricing and Trading of Risks

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  • Sjur Didrik Flåm

Abstract

Exchange of risks is considered here as a transferable-utility cooperative game. When the concerned agents are risk averse, there is a core imputation given by means of shadow prices on state-dependent claims. Like in finance, a risk can hardly be evaluated merely by its inherent statistical properties (in isolation from other risks). Rather, evaluation depends on the pooled risk and the convolution of individual preferences. Explored below are relations to finance with some emphasis on incompleteness. Included is a process of bilateral trade which converges to a price-supported core allocation.

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  • Sjur Didrik Flåm, 2002. "Pooling, Pricing and Trading of Risks," CESifo Working Paper Series 672, CESifo.
    • Handle: RePEc:ces:ceswps:_672
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    More about this item

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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