Details

Autor(en) / Beteiligte

• Boonen, Tim J.
• Ghossoub, Mario

Titel

BILATERAL RISK SHARING WITH HETEROGENEOUS BELIEFS AND EXPOSURE CONSTRAINTS

Ist Teil von

• ASTIN Bulletin : The Journal of the IAA, 2020-01, Vol.50 (1), p.293-323

Ort / Verlag

Cambridge: Cambridge University Press

Erscheinungsjahr

2020

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• Abstract This paper studies bilateral risk sharing under no aggregate uncertainty, where one agent has Expected-Utility preferences and the other agent has Rank-dependent utility preferences with a general probability distortion function. We impose exogenous constraints on the risk exposure for both agents, and we allow for any type or level of belief heterogeneity. We show that Pareto-optimal risk-sharing contracts can be obtained via a constrained utility maximization under a participation constraint of the other agent. This allows us to give an explicit characterization of optimal risk-sharing contracts. In particular, we show that an optimal risk-sharing contract contains allocations that are monotone functions of the likelihood ratio, where the latter is obtained from Lebesgue’s Decomposition Theorem.