The theory of risk exchange is applied on the allocation of financial risk in capital markets. It is shown how the shape of individual payoff functions depends on risk tolerance and cautiousness. For the special case where the Neumann-Morgenstern utility functions of all individual investors belong to the HARA class and have non decreasing risk tolerance it is proved that generalized versions of “portfolio insurance”, “tactical asset allocation” and “collars” are the only strategies occurring in price equilibrium.

An insurance company is considered as an intermediary between policyholders and the capital market. By applying the traditional and the generalized version of the capital asset pricing model, a class of premium principles can be derived. This class is fully compatible with Bühlmann's economic premium principle. Moreover, insurance premiums can be directly related to risk premiums on the stock exchange.

We explicitly calculate price equilibria for power and logarithmic utility functions which—together with the exponential utility functions—form the so-called HARA (Hyperbolic Absolute Risk Aversion) class.

A price equilibrium is economically admissible in the market which is a closed system. Furthermore it is on the one side individually optimal for each participant of the market (in the sense of maximal expected utility), on the other side it is a Pareto optimum and thus collectively optimal for the market as a whole.