Risk-insurance parity
Abstract
Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with different notions of risk aversion. We show that the classic notions -- both weak and strong -- of risk aversion can be characterized by propensity to different classes of insurance contracts, generalizing recent results on propensity to full, proportional, and deductible-limit contracts in the literature. We obtain full characterizations of the classes of insurance indemnity functions that correspond to weak and strong risk aversion. Risk-insurance parity allows us to define two new notions of risk aversion, between weak and strong, characterized by insurance propensity to deductible-only and limit-only contracts respectively.
Keywords
Cite
@article{arxiv.2512.09208,
title = {Risk-insurance parity},
author = {Benjamin Côté and Ruodu Wang and Qinyu Wu},
journal= {arXiv preprint arXiv:2512.09208},
year = {2025}
}