Multivariate Systemic Optimal Risk Transfer Equilibrium

TL;DR

This paper extends the concept of Systemic Optimal Risk Transfer Equilibrium (SORTE) to multivariate utility functions, allowing for interdependent agent preferences and establishing existence, uniqueness, and Nash equilibrium properties.

Contribution

It introduces a multivariate extension of SORTE, develops a new duality framework, and proves key properties including Nash equilibrium for the generalized model.

Findings

Existence of multivariate SORTE established

Uniqueness of the equilibrium proven

Nash equilibrium property demonstrated

Abstract

A Systemic Optimal Risk Transfer Equilibrium (SORTE) was introduced in: "Systemic optimal risk transfer equilibrium", Mathematics and Financial Economics (2021), for the analysis of the equilibrium among financial institutions or in insurance-reinsurance markets. A SORTE conjugates the classical B\"{u}hlmann's notion of a risk exchange equilibrium with a capital allocation principle based on systemic expected utility optimization. In this paper we extend such a notion to the case when the value function to be optimized is multivariate in a general sense, and it is not simply given by the sum of univariate utility functions. This takes into account the fact that preferences of single agents might depend on the actions of other participants in the game. Technically, the extension of SORTE to the new setup requires developing a theory for multivariate utility functions and selecting at the same time a suitable framework for the duality theory. Conceptually, this more general framework allows us to introduce and study a Nash Equilibrium property of the optimizer. We prove existence, uniqueness, and the Nash Equilibrium property of the newly defined Multivariate Systemic Optimal Risk Transfer Equilibrium.