Author: Eric BriysPublisher:
ISBN:
Category :
Languages : fr
Pages : 12
Book Description
Optimal insurance design under background risk
Author: Eric BriysOptimal Incentive Compatible Insurance with Background Risk
Author: Yichun ChiPublisher:
ISBN:
Category :
Languages : en
Pages : 29
Book Description
This paper studies the design of an optimal insurance contract with background risk from the perspective of an insured with a general mean-variance preference, where admissible insurance policies satisfy an incentive compatible constraint. This constraint ensures that both parties in an insurance contract would pay more for a larger realization of loss. As standard in the literature, it is assumed that the insurer is risk-neutral, that is, the insurance premium is calculated based only upon the expected indemnity. The optimal insurance form is derived explicitly, and it is found to rely heavily on the conditional expectation function of background risk with respect to the insurablerisk and often be significantly different from one that is derived without the incentive compatible constraint. This finding suggests that both the incentive compatible assumption and the stochastic dependence between background risk and the insurable risk play very important roles in the insured's risk transfer decision.
Handbook of Insurance
Author: Georges DionnePublisher: Springer Science & Business Media
ISBN: 9401006423
Category : Business & Economics
Languages : en
Pages : 980
Book Description
In the 1970's, the research agenda in insurance was dominated by optimal insurance coverage, security design, and equilibrium under conditions of imperfect information. The 1980's saw a growth of theoretical developments including non-expected utility, price volatility, retention capacity, the pricing and design of insurance contracts in the presence of multiple risks, and the liability insurance crisis. The empirical study of information problems, financial derivatives, and large losses due to catastrophic events dominated the research agenda in the 1990's. The Handbook of Insurance provides a single reference source on insurance for professors, researchers, graduate students, regulators, consultants, and practitioners, that reviews the research developments in insurance and its related fields that have occurred over the last thirty years. The book starts with the history and foundations of insurance theory and moves on to review asymmetric information, risk management and insurance pricing, and the industrial organization of insurance markets. The book ends with life insurance, pensions, and economic security. Each chapter has been written by a leading authority in insurance, all contributions have been peer reviewed, and each chapter can be read independently of the others.
Optimal Dynamic Asset Allocation and Optimal Insurance Design Under Value at Risk Constraint
Author: 汪青萍Optimal Insurance Design of Ambiguous Risks
Author: Christian GollierEssays on Optimal Insurance Design
Author: Johannes SpinnewijnPublisher:
ISBN:
Category :
Languages : en
Pages : 166
Book Description
(cont.) Heterogeneity in beliefs strengthens the case for government intervention in insurance markets and can explain the negative correlation between risk occurrence and insurance coverage found in empirical studies.
Optimal Risk Sharing with Background Risk
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
This paper examines qualitative properties of efficient insurance contracts in the presence of background risk. In order to get results for all strictly risk-averse expected utility maximizers, the concept of "stochastic increasingness" is used. Different assumptions on the stochastic dependence between the insurable and uninsurable risk lead to different qualitative properties of the efficient contracts. The new results obtained under hypotheses of dependent risks are compared to classical results in the absence of background risk or to the case of independent risks. The theory is further generalized to nonexpected utility maximizers.
Optimal Insurance Design Under Narrow Framing
Author: Jiakun ZhengPublisher:
ISBN:
Category :
Languages : en
Pages : 20
Book Description
In this paper, we incorporate a psychological factor called narrow framing into standard vNM expected utility model to explain low insurance purchase rate observed in many insurance markets which are sometimes heavily subsidized by governments. In this psychological model, insurance purchase is not only viewed as a way of transferring wealth from the states of low loss to the states of high loss, but also as a pure gamble against insurance companies. When the received indemnity is lower than the paid insurance premium, the economic agent feels like losing the gamble and vice-versa. We study the insurance demand when coinsurance policy is offered and show that partial insurance is strictly preferred even in case of zero transaction cost. We also discuss the optimal insurance design under narrow framing. It turns out that a (non-linear) coinsurance contract is optimal for losses above a certain threshold. We further allow for possible loss aversion and derive the optimal insurance scheme under both narrow framing and loss aversion. As a result, a flat payment of insurance premium should be applied to some intermediate losses.
Optimal Insurance Contract Design Under Mortality
Author: An ChenPublisher:
ISBN:
Category :
Languages : en
Pages : 24
Book Description
Some recent literature on optimal pension/life insurance design studies whether contracts with guarantees can be preferred by a utility-maximizing policyholder. In the absence of mortality risk, the main result in the literature (e.g. Doskeland and Nordahl (2008)) is that expected utility theory (EUT) fails to interpret demand for any forms of guarantees, while cumulative prospect theory (CPT) is able to support the demand for guarantees. In the present paper, we incorporate mortality in life/pension insurance contracts and investigate the effects on EUT- and CPT-investors. Our results show that an EUT investor might prefer products with guarantees. For CPT we propose two possibilities to include mortality in the analysis and examine their influence in a simulation based approach.
Optimal Insurance Under Rank-Dependent Expected Utility
Author: Mario GhossoubPublisher:
ISBN:
Category :
Languages : en
Pages : 33
Book Description
We re-visit the problem of optimal insurance design under Rank-Dependent Expected Utility (RDEU) examined by Bernard et al. (2015), Xu (2018), and Xu et al. (2015). Unlike the latter, we do not impose the no sabotage condition on admissible indemnities, that is, the comonotonicity of indemnity functions and retention functions with the loss. Rather, in a departure from the aforementioned work, we impose a state-verification cost that the insurer can incur in order to verify the loss severity, hence automatically ruling out any ex post moral hazard that could otherwise arise from possible misreporting of the loss by the insured. Hence, monotonicity properties of indemnification schedules become of second-order concern. We fully characterize the optimal indemnity schedule and discuss how our results relate to those of Bernard et al. (2015) and Xu et al. (2015). We then extend the setting by allowing for a distortion premium principle, with a distortion function that differs from that of the insured, and we provide a characterization of the optimal retention in that case.