Equilibrium in risk-sharing games

Anthropelos, Michail; Kardaras, Constantinos

doi:10.1007/s00780-017-0323-9

Cited by 21 publications

(13 citation statements)

References 30 publications

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“…In fact, it follows from the analysis of the bilateral game that the noncompetitive equilibrium is beneficial in terms of utility gain for two types of traders: those with sufficiently high pre-transaction beta, and those with sufficiently high risk tolerance. Such findings in noncompetitive markets are consistent with results in Anthropelos (2017) and Anthropelos and Kardaras (2017). (A result in that spirit also appears in Malamud and Rostek, 2017; namely it is shown that, when the market is centralized, less risk averse agents have greater price impact.…”

Section: Model Description and Main Contributionssupporting

confidence: 86%

“…Finally, models of thin risk-sharing markets, albeit with different sets of strategic choices, have been considered in Anthropelos (2017) and Anthropelos and Kardaras (2017). In Anthropelos (2017), traders choose the endowment submitted for sharing, and a game on agents' linear demand is formed; in contrast with the present paper, agents in Anthropelos (2017) choose the intercept of the demand function instead of its slope.…”

Section: Connections With Related Literaturementioning

confidence: 99%

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Effective risk aversion in thin risk‐sharing markets

Anthropelos

Kardaras

Vichos

2020

Mathematical Finance

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We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We argue that traders relatively more exposed to market risk tend to submit more elastic demand functions. Noncompetitive equilibrium prices and allocations result as an outcome of a game among traders. General sufficient conditions for existence and uniqueness of such equilibrium are provided, with an extensive analysis of two-trader transactions. Even though strategic behaviour causes inefficient social allocations, traders with sufficiently high risk tolerance and/or large initial exposure to market risk obtain more utility gain in the noncompetitive equilibrium, when compared to the competitive one.

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Section: Model Description and Main Contributionssupporting

confidence: 86%

Section: Connections With Related Literaturementioning

confidence: 99%

Effective risk aversion in thin risk‐sharing markets

Anthropelos

Kardaras

Vichos

2020

Mathematical Finance

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“…Analytical solutions for such a market are available for special classes of utility functions; see e.g. Anthropelos and Kardaras (2017). Below we outline the main steps.…”

Section: An Analytical Approach For the Competitive Equilibriamentioning

confidence: 99%

Competitive equilibria in a comonotone market

Boonen¹,

Liu²,

Wang³

2020

Econ Theory

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We investigate competitive equilibria in a special type of incomplete markets, referred to as a comonotone market, where agents can only trade such that their risk allocation is comonotonic. The comonotone market is motivated by the no-sabotage condition. For instance, in a standard insurance market, the allocation of risk among the insured, the insurer and the reinsurers is assumed to be comonotonic a priori to the risk-exchange. Two popular classes of preferences in risk management and behavioral economics, dual utilities (DU) and rank-dependent expected utilities (RDU), are used to formulate agents’ objectives. We present various results on properties and characterization of competitive equilibria in this framework, and in particular their relation to complete markets. For DU-comonotone markets, we find the equilibrium in closed form and for RDU-comonotone markets, we find the equilibrium in closed form in special cases. The fundamental theorems of welfare economics are established in both the DU and RDU markets. We further propose an algorithm to numerically obtain competitive equilibria based on discretization, which works for both the DU-comonotone market and the RDU-comonotone market. Although the comonotone and complete markets are closely related, many of our findings are intriguing and in sharp contrast to results in the literature on complete markets in terms of existence, uniqueness, and closed-form solutions of the equilibria, and comonotonicity of the pricing kernel.

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“…An extension to dynamic risk sharing under a notion of ambiguity is proposed by Dana and Riedel (2013). A more recent account is given by Anthropelos and Kardaras (2017), where agents can strategically choose their subjective beliefs regarding the underlying risk in the market. A more common notion of market incompleteness arises by the spanning of the payoff space by a limited number of securities.…”

Section: Related Literaturementioning

confidence: 99%