Insurance with Frequent Trading: A Dynamic Analysis of Efficient Insurance Markets

Universitat Pompeu Fabra Working Paper No. 460

28 Pages Posted: 28 Jul 2000

See all articles by José Penalva

José Penalva

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: April 2000

Abstract

This paper extends existing insurance results on the type of insurance contracts needed for insurance market efficiency to a dynamic setting. I extend the notion of insurable risks and define them in terms of the actuarial properties of the underlying risk process (independently of preferences and endowments), including catastrophic events as insurable. Then, taking risks that are insurable, I look at agent's optimal trading behaviour which turns out to be quite natural: agents purchase private insurance on themselves and use fully diversified redundant assets to supply insurance, making the insurance market self-contained.

Keywords: Risk sharing, insurance, complete markets, insurable risks

JEL Classification: D81, D99, G11

Suggested Citation

Penalva Zuasti, José S, Insurance with Frequent Trading: A Dynamic Analysis of Efficient Insurance Markets (April 2000). Universitat Pompeu Fabra Working Paper No. 460, Available at SSRN: https://ssrn.com/abstract=230833 or http://dx.doi.org/10.2139/ssrn.230833

José S Penalva Zuasti (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34-93) 542 19 26 (Phone)
(34-93) 542 17 46 (Fax)

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