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A Multi-agent Incomplete Equilibrium Model and Its Applications to Reinsurance Pricing and Life-Cycle Investment

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  • Keisuke Kizaki

    (Graduate School of Economics, The University of Tokyo,)

  • Taiga Saito

    (Faculty of Economics, The University of Tokyo, Mizuho-DL Financial Technology Co., Ltd.)

  • Akihiko Takahashi

    (Faculty of Economics, The University of Tokyo)

Abstract

This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical experiments, we explicitly obtain endogenously determined expected returns of the risky asset in equilibrium, agents' specific reinsurance prices with their stochastic discount factors (SDF) and optimal life-cycle trading strategies. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.

Suggested Citation

  • Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2022. "A Multi-agent Incomplete Equilibrium Model and Its Applications to Reinsurance Pricing and Life-Cycle Investment," CIRJE F-Series CIRJE-F-1206, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2022cf1206
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    References listed on IDEAS

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    1. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2022. "Multi-agent Robust Optimal Investment Problem in Incomplete Market," CIRJE F-Series CIRJE-F-1198, CIRJE, Faculty of Economics, University of Tokyo.
    2. Becherer, Dirk, 2003. "Rational hedging and valuation of integrated risks under constant absolute risk aversion," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 1-28, August.
    3. Jin Choi & Kasper Larsen, 2015. "Taylor approximation of incomplete Radner equilibrium models," Finance and Stochastics, Springer, vol. 19(3), pages 653-679, July.
    4. Massimo Arnone & Michele Leonardo Bianchi & Anna Grazia Quaranta & Gian Luca Tassinari, 2021. "Catastrophic risks and the pricing of catastrophe equity put options," Computational Management Science, Springer, vol. 18(2), pages 213-237, June.
    5. Henderson, Vicky, 2005. "Explicit solutions to an optimal portfolio choice problem with stochastic income," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1237-1266, July.
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