Optimal Risk Sharing under Distorted Probabilities - Mathematics > Optimization and ControlReport as inadecuate




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Abstract: We study optimal risk sharing among $n$ agents endowed with distortion riskmeasures. Our model includes market frictions that can either represent lineartransaction costs or risk premia charged by a clearing house for the agents.Risk sharing under third-party constraints is also considered. We obtain anexplicit formula for Pareto optimal allocations. In particular, we find that astop-loss or deductible risk sharing is optimal in the case of two agents andseveral common distortion functions. This extends recent result of Jouini etal. 2006 to the problem with unbounded risks and market frictions.



Author: M. Ludkovski, V.R. Young

Source: https://arxiv.org/







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