Related papers: Risk-insurance parity
Index insurance is often proposed to reduce protection gaps, especially for emerging risks. Unlike traditional insurance, it bases compensation on a measurable index, enabling faster payouts and lower claim management costs. This approach…
We consider the problem of Adverse Selection and optimal derivative design within a Principal-Agent framework. The principal's income is exposed to non-hedgeable risk factors arising, for instance, from weather or climate phenomena. She…
Typical risk classification procedure in insurance is consists of a priori risk classification determined by observable risk characteristics, and a posteriori risk classification where the premium is adjusted to reflect the policyholder's…
Limited liability creates a conflict of interests between policyholders and shareholders of insurance companies. It provides shareholders with incentives to increase the risk of the insurer's assets and liabilities which, in turn, might…
At the core of insurance business lies classification between risky and non-risky insureds, actuarial fairness meaning that risky insureds should contribute more and pay a higher premium than non-risky or less-risky ones. Actuaries,…
In the hypothesis of rare loss events, the general expression of the policy value has been determined as a functional of the "expected frequency / loss severity" function and of the retention function. Exponential disutility has been chosen…
We consider a generalization of the classical risk model when the premium intensity depends on the current surplus of an insurance company. All surplus is invested in the risky asset, the price of which follows a geometric Brownian motion.…
A one-to-one correspondence is drawn between law invariant risk measures and divergences, which we define as functionals of pairs of probability measures on arbitrary standard Borel spaces satisfying a few natural properties. Divergences…
The option is a financial derivative, which is regularly employed in reducing the risk of its underlying securities. However, investing in option is still risky. Such risk becomes much severer for speculators who utilize option as a means…
De Finetti's optimal reinsurance is a set of contracts, one for each risk in a portfolio, that caps the retained aggregate variance to a pre-specified level while minimizing total expected loss. The premiums are determined using the…
Debt aversion can have severe adverse effects on financial decision-making. We propose a model of debt aversion, and design an experiment involving real debt and saving contracts, to elicit and jointly estimate debt aversion with…
The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions…
In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…
In order to determine a suitable automobile insurance policy premium one needs to take into account three factors, the risk associated with the drivers and cars on the policy, the operational costs associated with management of the policy…
Adversarial risk quantifies the performance of classifiers on adversarially perturbed data. Numerous definitions of adversarial risk -- not all mathematically rigorous and differing subtly in the details -- have appeared in the literature.…
This chapter will first present a principal-agent game-theoretic model to capture the interactions between one insurer and one user. The insurer is deemed as the principal who does not have incomplete information about user's security…
Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying…
When an insurance note is also a derivative a serious problem arises because a derivative must be fulfilled immediately. This feature of derivatives prevents claims processing procedures that screen out ineligible claims. This, in turn,…
We introduce the concept of partial law invariance, generalizing the concepts of law invariance and probabilistic sophistication widely used in decision theory, as well as statistical and financial applications. This new concept is…
We represent preferences that exhibit absolute or relative attitudes towards ambiguity without assuming convexity of preferences. Our analysis is motivated by the recent experimental evidence by Baillon and Placido (2019) indicating that…