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On the optimal design of insurance contracts with the restriction of equity risk

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  • Sun, Wujun
  • Dong, Dandan

Abstract

This paper focuses on the optimal design of insurance contracts with the restriction of equity risk by Arrow's optimal insurance model [2] and Zhou's optimal insurance model [4]. The insured aims to maximize his/her expected utility of terminal wealth, under the constraint that the insurer wishes to control his/her risk. We establish an optimal insurance model that restrains underwriting risk and investment risk simultaneously. We solve this problem and obtain the results which improve and extend the results given by Arrow [2] and Zhou [4].

Suggested Citation

  • Sun, Wujun & Dong, Dandan, 2015. "On the optimal design of insurance contracts with the restriction of equity risk," Economic Modelling, Elsevier, vol. 51(C), pages 646-652.
    • Handle: RePEc:eee:ecmode:v:51:y:2015:i:c:p:646-652
    DOI: 10.1016/j.econmod.2015.09.020
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    References listed on IDEAS

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    1. Zhou, Chunyang & Wu, Chongfeng, 2008. "Optimal insurance under the insurer's risk constraint," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 992-999, June.
    2. Promislow, S.David & Young, Virginia R., 2005. "Unifying framework for optimal insurance," Insurance: Mathematics and Economics, Elsevier, vol. 36(3), pages 347-364, June.
    3. Hung-Hsi Huang, 2006. "Optimal insurance contract under a value-at-risk constraint," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 31(2), pages 91-110, December.
    4. Deprez, Olivier & Gerber, Hans U., 1985. "On convex principles of premium calculation," Insurance: Mathematics and Economics, Elsevier, vol. 4(3), pages 179-189, July.
    5. Gajek, Leslaw & Zagrodny, Dariusz, 2000. "Insurer's optimal reinsurance strategies," Insurance: Mathematics and Economics, Elsevier, vol. 27(1), pages 105-112, August.
    6. Hung-Hsi Huang, 2006. "Optimal insurance contract under a value-at-risk constraint," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 31(2), pages 91-110, December.
    7. Ching-Ping Wang & David Shyu & Hung-Hsi Huang, 2005. "Optimal Insurance Design Under a Value-at-Risk Framework," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(2), pages 161-179, December.
    8. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
    9. Ching-Ping Wang & David Shyu & Hung-Hsi Huang, 2005. "Optimal Insurance Design Under a Value-at-Risk Framework," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(2), pages 161-179, December.
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