OpenAlex ·
Computing Equilibria in Simulation-Based Insurance Markets with Discontinuous Demand
- Published
- Source
- OpenAlex
- DOI
- 10.48550/arxiv.2608.30814
- Original
- Read it at the publisher
- Topics
Abstract
We study equilibrium computation in simulation-based games motivated by competition in natural-hazard insurance markets. The motivating application considers a multi-region market in which each insurer selects regional pricing and reinsurance decisions to maximize expected financial performance subject to multi-period insolvency constraints. Competitors' decisions affect both profitability and insolvency feasibility through the insured portfolio. Consequently, the strategic interaction defines a generalized Nash game with discontinuous player objectives induced by discrete household purchase decisions and potentially nonconvex feasible sets generated by the insolvency constraints. Discontinuity, nonconvex feasibility, and simulation-defined objectives and constraints complicate the direct use of standard optimality-based equilibrium formulations. Moreover, repeated evaluation of the multi-period simulator makes equilibrium search computationally expensive. To address these computational challenges, we develop an evaluation-efficient framework for computing approximate local equilibria, which combines a response optimizer tailored to the distinct structures of pricing and reinsurance with damped better-response dynamics to mitigate cycling. In a case study of the North Carolina hurricane insurance market, the framework identifies multiple approximate local equilibrium candidates both with and without a household affordability cap and finds no profitable sampled unilateral deviations within the tested neighborhoods under the original simulation model. A representative equilibrium candidate is computed in approximately 5--10 minutes on a single GPU, making repeated equilibrium analyses computationally practical.
The authors’ abstract, as arXiv lists it. arXiv’s listings, abstracts included, are free for anyone to reuse.
Read it on ReadSearch
Each opens after you create an account, and brings you back to this paper.
More in Econometrics
Get the few papers worth your time in Econometrics every morning.
ReadSearch reads the new papers in your field each day and brings you the few worth reading, each with its key finding in a sentence.