Pooling, pricing and trading of risks

Exchange of risks is considered here as a transferable-utility cooperative game. When the concerned agents are risk averse, there is a core imputation given by means of shadow prices on state-dependent claims. Like in finance, a risk can hardly be evaluated merely by its inherent statistical properties (in isolation from other risks). Rather, evaluation depends on the pooled risk and the convolution of individual preferences. Explored below are relations to finance with some emphasis on incompleteness. Included is a process of bilateral trade which converges to a price-supported core allocation. JEL Classification: C71. Sjur Didrik Flåm University of Bergen and Norwegian School of Economics and Business Administration Institute of Economics Fosswinckelsgate 6 5007 Bergen Norway [email protected] Pooling, Pricing and Trading of Risks Sjur Didrik Flåm¤