A Multi-Agent Incomplete Equilibrium Model and Its Applications to Reinsurance Pricing and Life-Cycle Investment

This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical experiments, we explicitly obtain agents' specific reinsurance prices with their stochastic discount factors (SDF), optimal life-cycle trading strategies, and endogenously determined expected returns of an risky asset in equilibrium. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between economic or insurance factors and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment