We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium (SORTE), which is inspired by the Bühlmann’s classical notion of an Equilibrium Risk Exchange. We provide sufficient general assumptions that guarantee existence, uniqueness, and Pareto optimality of such a SORTE. In both the Bühlmann and the SORTE definition, each agent is behaving rationally by maximizing his/her expected utility given a budget constraint. The two approaches differ by the budget constraints. In Bühlmann’s definition the vector that assigns the budget constraint is given a priori. On the contrary, in the SORTE approach, the vector that assigns the budget constraint is endogenously determined by solving a systemic utility maximization. SORTE gives priority to the systemic aspects of the problem, in order to optimize the overall systemic performance, rather than to individual rationality.

Systemic optimal risk transfer equilibrium / F. Biagini, A. Doldi, J. Fouque, M. Frittelli, T. Meyer-Brandis. - In: MATHEMATICS AND FINANCIAL ECONOMICS. - ISSN 1862-9679. - 15:2(2021 Mar), pp. 233-274. [10.1007/s11579-020-00277-8]

Systemic optimal risk transfer equilibrium

A. Doldi
Secondo
;
M. Frittelli
Penultimo
;
2021

Abstract

We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium (SORTE), which is inspired by the Bühlmann’s classical notion of an Equilibrium Risk Exchange. We provide sufficient general assumptions that guarantee existence, uniqueness, and Pareto optimality of such a SORTE. In both the Bühlmann and the SORTE definition, each agent is behaving rationally by maximizing his/her expected utility given a budget constraint. The two approaches differ by the budget constraints. In Bühlmann’s definition the vector that assigns the budget constraint is given a priori. On the contrary, in the SORTE approach, the vector that assigns the budget constraint is endogenously determined by solving a systemic utility maximization. SORTE gives priority to the systemic aspects of the problem, in order to optimize the overall systemic performance, rather than to individual rationality.
Equilibrium; Systemic utility maximization; Optimal risk sharing; Systemic risk
Settore SECS-S/06 - Metodi mat. dell'economia e Scienze Attuariali e Finanziarie
19-gen-2021
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/807802
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