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A Welfare Analysis of Capital Insurance
AbstractThis paper presents a welfare analysis of several capital insurance programs in a rational expectation equilibrium setting. We first explicitly characterize the equilibrium of each capital insurance program. Then, we demonstrate that a capital insurance program based on aggregate loss is better than classical insurance, when big financial institutions have similar expected loss exposures. By contrast, classical insurance is more desirable when the bank’s individual risk is consistent with the expected loss in a precise way. Our analysis shows that a capital insurance program is a useful tool to hedge systemic risk from the regulatory perspective.
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Panttser, E.; Tian, W. A Welfare Analysis of Capital Insurance. Risks 2013, 1, 57-80.View more citation formats
Panttser E, Tian W. A Welfare Analysis of Capital Insurance. Risks. 2013; 1(2):57-80.Chicago/Turabian Style
Panttser, Ekaterina; Tian, Weidong. 2013. "A Welfare Analysis of Capital Insurance." Risks 1, no. 2: 57-80.