Nash equilibria in optimal reinsurance bargaining

DOI10.1016/J.INSMATHECO.2020.05.001MaRDI QIDQ784435zbMATH OpenOpenAlexFDO

Authors Michail Anthropelos, Tim J. Boonen

Publication date 3 August 2020

Published in Insurance Mathematics \& Economics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/1909.01739

zbMATH Keywords

Nash equilibriumoptimal reinsurance contractNash bargainingrisk-sharing gamesstrategically chosen risk aversion

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Applications of game theory (91A80) Auctions, bargaining, bidding and selling, and other market models (91B26)

Abstract: We introduce a strategic behavior in reinsurance bilateral transactions, where agents choose the risk preferences they will appear to have in the transaction. Within a wide class of risk measures, we identify agents' strategic choices to a range of risk aversion coefficients. It is shown that at the strictly beneficial Nash equilibria, agents appear homogeneous with respect to their risk preferences. While the game does not cause any loss of total welfare gain, its allocation between agents is heavily affected by the agents' strategic behavior. This allocation is reflected in the reinsurance premium, while the insurance indemnity remains the same in all strictly beneficial Nash equilibria. Furthermore, the effect of agents' bargaining power vanishes through the game procedure and the agent who gets more welfare gain is the one who has an advantage in choosing the common risk aversion at the equilibrium.

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Cited in

(14)

• A dynamic pricing game for general insurance market
• PRICING IN REINSURANCE BARGAINING WITH COMONOTONIC ADDITIVE UTILITY FUNCTIONS
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