Related papers: Risk-insurance parity
We provide a new foundation of risk aversion by showing that this attitude is fully captured by the propensity to seize insurance opportunities. Our foundation, which applies to all probabilistically sophisticated preferences, well accords…
Portfolio diversification is a cornerstone of modern finance, while risk aversion is central to decision theory; both concepts are long-standing and foundational. We investigate their connections by studying how different forms of…
As insurers increasingly behave like financial intermediaries and actively participate in capital markets, understanding the dependence structure between insurance and financial risks becomes crucial for insurers' operations. This paper…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
Risk perceptions are essential in cyber insurance contracts. With the recent surge of information, human risk perceptions are exposed to the influences from both beneficial knowledge and fake news. In this paper, we study the role of the…
This paper introduces an economic framework to assess optimal longevity risk transfers between institutions, focusing on the interactions between a buyer exposed to long-term longevity risk and a seller offering longevity protection. While…
An investor's risk aversion is assumed to tend to infinity. In a fairly general setting, we present conditions ensuring that the respective utility indifference prices of a given contingent claim converge to its super replication price.
With the rise of emerging risks, model uncertainty poses a fundamental challenge in the insurance industry, making robust pricing a first-order question. This paper investigates how insurers' robustness preferences shape competitive…
In high-risk environments, traditional indemnity insurance is often unaffordable or ineffective, despite its well-known optimality under expected utility. We compare excess-of-loss indemnity insurance with parametric insurance within a…
This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive…
We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…
We analyze the limiting behavior of the risk premium associated with the Pareto optimal risk sharing contract in an infinitely expanding pool of risks under a general class of law-invariant risk measures encompassing rank-dependent utility…
How should successive generations insure each other when the young can default on previously promised transfers to the old? This paper studies intergenerational insurance that maximizes the expected discounted utility of all generations…
We introduce a way to compare actions in decision problems. One action is safer than another if the set of beliefs at which the decision-maker prefers the safer action expands as the decision-maker becomes more risk averse. We provide a…
We consider a monopoly insurance market with a risk-neutral profit-maximizing insurer and a consumer with Yaari Dual Utility preferences that distort the given continuous loss distribution. The insurer observes the loss distribution but not…
This paper studies Pareto-optimal reinsurance design in a monopolistic market with multiple primary insurers and a single reinsurer, all with heterogeneous risk preferences. The risk preferences are characterized by a family of risk…
To make medium- and long-term insurance products attractive, it is essential to enable participation in stock market returns. However, to eliminate downside risk, guarantees must be included, which naturally leads to the challenge of…