Fully-funded risk-sharing schemes
(2026) , 39 pages
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- Abstract
- This paper proposes a new fully-funded risk-sharing mechanism among economic agents. Individual contributions are deterministic and selected ex ante, while ex-post payoffs depend on realized individual losses and aggregate surplus or deficit at the level of the pool. Full compensation is awarded to claiming participants and surplus is distributed as long as the aggregate losses remain smaller than the accumulated contributions, whereas compensations are reduced proportionally in case of deficit. The paper establishes the existence of actuarially-fair contributions, ensuring that each agent’s contribution equals the corresponding expected payoff. The risk-reduction properties of the proposed mechanism are analyzed with respect to the convex order. Particular attention is devoted to the case where total contributions are equal to the expected aggregate loss. In this case, limiting values of individual contributions are derived as well as the asymptotic distribution of the number of participants who are only partially compensated. Refined results are obtained in the homogeneous case, allowing for a better understanding of the proposed risk-sharing mechanism. Numerical illustrations based on Monte-Carlo methods demonstrate how the theoretical results can be applied in practice.
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Citations
Denuit, M., & Robert, C. (2026). Fully-funded risk-sharing schemes (LIDAM Discussion Paper ISBA 2026/14). https://hdl.handle.net/2078.5/275924