A dynamic general equilibrium analysis of insurance-linked securities and their effect on financla stability

2017 Fiscal Year Final Research Report

• Project/Area Number: 15K03537
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Money/ Finance
• Research Institution: Hitotsubashi University
• Principal Investigator: Nakamura Hisashi 一橋大学, 大学院商学研究科, 准教授 (80418649)
• Project Period (FY): 2015-04-01 – 2018-03-31
• Keywords: 企業リスク管理 / 保険 / 保険リンク証券 / 動学一般均衡

Outline of Final Research Achievements

This research project provides an equilibrium asset pricing formula under moral hazard. Moral hazard is defined as a firm's costly and incontractible change of measure. The effect of moral hazard on asset prices is characterized by a twist of state price densities. Moral hazard distorts asset prices by (1) decreasing the market price of diffusive risk, (2) increasing the market price of jump risk, (3) lowering the Sharpe ratio, and (4) stipulating a positive premium on a riskless rate. The risk-free rate puzzle is further exaggerated under moral hazard. In addition, using the formula, this research project makes clear an optimal combination of insurance, derivatives and insurance-linked securities in corporate risk management against diffusive risk
(i.e., normal-time risk) and jump risk (i.e., rare-event risk) when the moral hazard problem distorts the markets.

Free Research Field

金融リスク管理、資産価格