Journal article
Optimal Insurance for a Minimal Expected Retention: The Case of an Ambiguity-Seeking Insurer
Risks (Basel), Vol.4(1), pp.1-27
03/01/2016
DOI: 10.3390/risks4010008
Abstract
In the classical expected utility framework, a problem of optimal insurance design with a premium constraint is equivalent to a problem of optimal insurance design with a minimum expected retention constraint. When the insurer has ambiguous beliefs represented by a non-additive probability measure, as in Schmeidler, this equivalence no longer holds. Recently, Amarante, Ghossoub and Phelps examined the problem of optimal insurance design with a premium constraint when the insurer has ambiguous beliefs. In particular, they showed that when the insurer is ambiguity-seeking, with a concave distortion of the insured's probability measure, then the optimal indemnity schedule is a state-contingent deductible schedule, in which the deductible depends on the state of the world only through the insurer's distortion function. In this paper, we examine the problem of optimal insurance design with a minimum expected retention constraint, in the case where the insurer is ambiguity-seeking. We obtain the aforementioned result of Amarante, Ghossoub and Phelps and the classical result of Arrow as special cases.
Details
- Title: Subtitle
- Optimal Insurance for a Minimal Expected Retention: The Case of an Ambiguity-Seeking Insurer
- Creators
- Massimiliano Amarante - Université de MontréalMario Ghossoub - Imperial College London
- Resource Type
- Journal article
- Publication Details
- Risks (Basel), Vol.4(1), pp.1-27
- DOI
- 10.3390/risks4010008
- ISSN
- 2227-9091
- eISSN
- 2227-9091
- Publisher
- Mdpi
- Number of pages
- 27
- Language
- English
- Date published
- 03/01/2016
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179850302771
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