Related papers: Insurance design and arson-type risks
No one doubts the utility of insurance for its ability to spread risk or streamline claims management; much debated is when and how insurance uptake can improve welfare by reducing harm, despite moral hazard. Proponents and dissenters of…
Managing unemployment is one of the key issues in social policies. Unemployment insurance schemes are designed to cushion the financial and morale blow of loss of job but also to encourage the unemployed to seek new jobs more pro-actively…
We study a moral hazard problem with adverse selection: a risk-neutral agent can directly control the output distribution and possess private information about the production environment. The principal designs a menu of contracts satisfying…
We study a two-period moral hazard problem; there are two agents, with action sets that are unknown to the principal. The principal contracts with each agent sequentially, and seeks to maximize the worst-case discounted sum of payoffs,…
We study an infinite-horizon optimal investment, consumption and insurance problem for an economic agent who consumes a perishable and a durable good. The agent trades in a risk-free asset, a risky asset, and a durable good whose price…
Wildfires and other extreme weather conditions due to climate change are stressing the aging electrical infrastructure. Power utilities have implemented public safety power shutoffs as a method to mitigate the risk of wildfire by…
We study the design of mechanisms -- e.g., auctions -- when the designer does not control information flows between mechanism participants. A mechanism equilibrium is leakage-proof if no player conditions their actions on leaked…
This paper motivates the views that for complex systems, risk should be controlled by enforcing constraints in a modular way at different system levels, that the constraints can be expressed as assurance contracts and that acceptable risk…
We consider a continuous time Principal-Agent model on a finite time horizon, where we look for the existence of an optimal contract both parties agreed on. Contrary to the main stream, where the principal is modelled as risk-neutral, we…
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…
This paper proposes a novel continuous-time dynamic contract framework that has a risk-limiting capability. If a principal and an agent enter into such a contract, the principal can optimally manage its performance and risk with a guarantee…
An income loss can have a negative impact on households, forcing them to reduce their consumption of some staple goods. This can lead to health issues and, consequently, generate significant costs for society. We suggest that consumers can,…
In the classical static optimal reinsurance problem, the cost of capital for the insurer's risk exposure determined by a monetary risk measure is minimized over the class of reinsurance treaties represented by increasing Lipschitz retained…
This paper investigates a robust optimal consumption, investment, and reinsurance problem for an insurer with Epstein-Zin recursive preferences operating under model uncertainty. The insurer's surplus follows the diffusion approximation of…
Constructed facilities should be robust with respect to the loss of load-bearing elements due to abnormal events. Yet, strengthening structures to withstand such damage has a significant impact on construction costs. Strengthening costs…
We find the optimal indemnity to maximize the expected utility of terminal wealth of a buyer of insurance whose preferences are modeled by an exponential utility. The insurance premium is computed by a convex functional. We obtain a…
We consider the problem of designing controllers to guarantee safety in a class of nonlinear systems under uncertainties in the system dynamics and/or the environment. We define a class of uncertain control barrier functions (CBFs), and…
In the classical principal-agent problem, a principal must design a contract to incentivize an agent to perform an action on behalf of the principal. We study the classical principal-agent problem in a setting where the agent can be of one…
Linear contracts are ubiquitous in practice, yet optimal contract theory often prescribes complex, nonlinear structures. We provide a distributional robustness justification for linear contracts. We study a principal-agent problem where the…
We develop a formalism for insurance profit optimisation for the in-force business constraint by regulatory and risk policy related requirements. This approach is applicable to Life, P&C and Reinsurance businesses and applies in all…