Abstract
This paper considers a continuous-time economic equilibrium model for deriving the economic premium principle of Buhlmann and Iwaki, Kijima and Morimoto. In order to do this, we construct a continuous-time consumption/portfolio model, and consider an equilibrium in a pure-exchange economy. The state price density in equilibrium is obtained in terms of the Arrow-Pratt index of absolute risk aversion for a representative agent. As special cases, power and exponential utility functions are examined, and we derive an endogenously decided equilibrium insurance premium in explicit form.
