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Risk Sharing with Multiple Indemnity Environments

Asimit, A.V. ORCID: 0000-0002-7706-0066, Boonen, T. J., Chi, Y. and Chong, W. F. (2021). Risk Sharing with Multiple Indemnity Environments. European Journal of Operational Research,

Abstract

Optimal risk sharing arrangements have been substantially studied in the literature, from the aspects of generalizing objective functions, incorporating more business con- straints, and investigating different optimality criteria. This paper proposes an insur- ance model with multiple risk environments. We study the case where the two agents are endowed with the Value-at-Risk or the Tail Value-at-Risk, or when both agents are risk-neutral but have heterogeneous beliefs regarding the underlying probability distribution. We show that layer-type indemnities, within each risk environment, are Pareto optimal, which may be environment-specific. From Pareto optimality, we get that the premium can be chosen in a given interval, and we propose to allocate the gains from risk sharing equally between the buyer and seller.

Publication Type: Article
Additional Information: © Elsevier 2021 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Departments: Business School > Actuarial Science & Insurance
Date Deposited: 09 Apr 2021 12:02
URI: https://openaccess.city.ac.uk/id/eprint/25887
[img] Text - Accepted Version
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