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Insurance with frequent trading

Listed author(s):
  • José Penalva
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    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.

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    Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 365.

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    Date of creation: Oct 1997
    Date of revision: Mar 1999
    Handle: RePEc:upf:upfgen:365
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