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Tuesday, August 3 • 2:30pm - 4:00pm
5B1 Peer-to-Peer Risk Sharing with an Application to Flood Risk Pooling

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Runhuan Feng, University of Illinois at Urbana-Champaign; Chongda Liu, University of Illinois at Urbana-Champaign; Steve Taylor, New Jersey Institute of Technology

In contrast with classic centralized risk sharing, a novel peer-to-peer risk sharing framework is proposed. The presented framework aims to devise a risk allocation mechanism that is structurally decentralized, Pareto optimal, and mathematically fair. An explicit form for the pool allocation ratio matrix is derived, and convex programming techniques are applied to determine the optimal pooling mechanism in a constrained variance reduction setting. A tiered hierarchical generalization is also constructed to improve computational efficiency. As an illustration, these techniques are applied to a flood risk pooling example. It is shown that peer-to-peer risk sharing techniques provide an economically viable alternative to traditional flood policies.

Discussant
MG

Mario Ghossoub

University of Waterloo

Presenters
RF

Runhuan Feng

University of Illinois at Urbana-Champaign
ST

Steve Taylor

Asst. Prof, NJIT



Tuesday August 3, 2021 2:30pm - 4:00pm EDT