Risk exchange as a market or production game

Abstract

Risk exchange is considered here as a cooperative game with transferable utility. The set-up fits markets for insurance, securities and contingent endowments. When convoluted payoff is concave at the aggregate endowment, there is a price-supported core solution. Under variance aversion the latter mirrors the two-fund separation in allocating to each agent some sure holding plus a fraction of the aggregate.securities; mutual insurance; market or production games; transferable utility; extremal convolution; core solutions; variance or risk aversion; two-fund separation; CAPM.