Pooling, Pricing and Trading of Risks
Abstract. Exchange of risks is considered here as a transferableutility, cooperative game, featuring risk averse players. Like in competitive equilibrium, a core solution is determined by shadow prices on state-dependent claims. And like in finance, no risk can properly be priced only in terms of its marginal distribution. Pricing rather depends on the pooled risk and on the convolution of individual preferences. The paper elaborates on these features, placing emphasis on the role of prices and incompleteness. Some novelties come by bringing questions about existence, computation and uniqueness of solutions to revolve around standard Lagrangian duality. Especially outlined is how repeated bilateral trade may bring about a price-supported core allocation.
|Date of creation:||01 Apr 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway|
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