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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2007:16:
Risk Exchange as a Market or Production Game

Anders Borglin () and Sjur Flåm ()

Abstract: Risk exchange is considered here as a cooperative game with transferable utility. The set-up fits markets for insurance, securities and contingent endowments. When convoluted payoff is concave at the aggregate endowment, there is a price-supported core solution. Under variance aversion the latter mirrors the two-fund separation in allocating to each agent some sure holding plus a fraction of the aggregate.

Keywords: securities; mutual insurance; market or production games; transferable utility; extremal convolution; core solutions; variance or risk aversion; two-fund separation; CAPM; (follow links to similar papers)

JEL-Codes: C61; G11; G12; G13; (follow links to similar papers)

27 pages, October 8, 2007

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