Quantile-based risk sharing with heterogeneous beliefs
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We study risk sharing problems with quantile-based risk measures and heterogeneous beliefs, motivated by the use of internal models in finance and insurance. Explicit forms of Pareto-optimal allocations and competitive equilibria are obtained by solving various optimization problems. For Expected Shortfall (ES) agents, Pareto-optimal allocations are shown to be equivalent to equilibrium allocations, and the equilibrium pricing measure is unique. For Value-at-Risk (VaR) agents or mixed VaR and ES agents, a competitive equilibrium does not exist. Our results generalize existing ones on risk sharing problems with risk measures and belief homogeneity, and draw an interesting connection to early work on optimization properties of ES and VaR.
KeywordsRisk sharing Competitive equilibrium Belief heterogeneity Quantiles Non-convexity Risk measures
Mathematics Subject Classification91A06 91B50 46N10
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