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Insurance with frequent trading

Author

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  • José Penalva

Abstract

This paper looks at the dynamic management of risk in an economy with discrete time consumption and endowments and continuous trading. I study how agents in such an economy deal with all the risk in the economy and attain their Pareto optimal allocations by trading in a few natural securities: private insurance contracts and a common set of derivatives on the aggregate endowment. The parsimonious nature of the implied securities needed for Pareto optimality suggests that in such contexts complete markets is a very reasonable assumption.

Suggested Citation

  • José Penalva, 1997. "Insurance with frequent trading," Economics Working Papers 365, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1999.
  • Handle: RePEc:upf:upfgen:365
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    File URL: https://econ-papers.upf.edu/papers/365.pdf
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    References listed on IDEAS

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    1. repec:cup:apsrev:v:66:y:1972:i:02:p:555-568_13 is not listed on IDEAS
    2. Richard Zeckhauser, 1969. "Majority Rule with Lotteries on Alternatives," The Quarterly Journal of Economics, Oxford University Press, vol. 83(4), pages 696-703.
    3. Banks, Jeffrey S., 1990. "A model of electoral competition with incomplete information," Journal of Economic Theory, Elsevier, vol. 50(2), pages 309-325, April.
    4. Alberto Alesina & Alex Cukierman, 1990. "The Politics of Ambiguity," The Quarterly Journal of Economics, Oxford University Press, pages 829-850.
    5. Enriqueta Aragonés & Zvika Neeman, 1994. "Strategic ambiguity in electoral competition," Economics Working Papers 162, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1996.
    6. Alessandro Lizzeri, 1999. "Budget Deficits and Redistributive Politics," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 909-928.
    7. Joseph E. Harrington, 1992. "The Revelation Of Information Through The Electoral Process: An Exploratory Analysis," Economics and Politics, Wiley Blackwell, vol. 4(3), pages 255-276, November.
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    More about this item

    Keywords

    Risk-sharing; insurance; hedging; point-processes; complete markets; general equilibrium;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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