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Pareto-optimal insurance contracts with premium budget and minimum charge constraints

Asimit, A.V. ORCID: 0000-0002-7706-0066, Cheung, K. C., Chong, W. F. and Hu, J. (2020). Pareto-optimal insurance contracts with premium budget and minimum charge constraints. Insurance: Mathematics and Economics, 95, pp. 17-27. doi: 10.1016/j.insmatheco.2020.08.001

Abstract

In view of the fact that minimum charge and premium budget constraints are natural economic considerations in any risk-transfer between the insurance buyer and seller, this paper revisits the optimal insurance contract design problem in terms of Pareto optimality with imposing these practical constraints. Pareto optimal insurance contracts, with indemnity schedule and premium payment, are solved in the cases when the risk preferences of the buyer and seller are given by Value-at-Risk or Tail Value-at-Risk. The effect of our constraints and the relative bargaining powers of the buyer and seller on the Pareto optimal insurance contracts are highlighted. Numerical experiments are employed to further examine these effects for some given risk preferences.

Publication Type: Article
Additional Information: © 2020 Elsevier B.V. All rights reserved. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Bargaining power, Minimum charge, Optimal insurance contract design, Pareto optimality, Premium budget, Proportional Hazard Transformation, Tail Value-at-Risk Value-at-Risk
Subjects: H Social Sciences > HG Finance
Departments: Business School > Actuarial Science & Insurance
Date Deposited: 16 Sep 2020 12:10
URI: https://openaccess.city.ac.uk/id/eprint/24893
[img] Text - Accepted Version
This document is not freely accessible until 20 February 2022 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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