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Optimal allocation of policy limits and deductibles

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  • Cheung, Ka Chun

Abstract

In this paper, we study the problems of optimal allocation of policy limits and deductibles. Several objective functions are considered: maximizing the expected utility of wealth assuming the losses are independent, minimizing the expected total retained loss and maximizing the expected utility of wealth when the dependence structure is unknown. Orderings of the optimal allocations are obtained.

Suggested Citation

  • Cheung, Ka Chun, 2007. "Optimal allocation of policy limits and deductibles," Insurance: Mathematics and Economics, Elsevier, vol. 41(3), pages 382-391, November.
    • Handle: RePEc:eee:insuma:v:41:y:2007:i:3:p:382-391
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    References listed on IDEAS

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    1. Dhaene, J. & Denuit, M. & Goovaerts, M. J. & Kaas, R. & Vyncke, D., 2002. "The concept of comonotonicity in actuarial science and finance: theory," Insurance: Mathematics and Economics, Elsevier, vol. 31(1), pages 3-33, August.
    2. Kaas, Rob & Dhaene, Jan & Goovaerts, Marc J., 2000. "Upper and lower bounds for sums of random variables," Insurance: Mathematics and Economics, Elsevier, vol. 27(2), pages 151-168, October.
    3. Dhaene, Jan & Goovaerts, Marc J., 1996. "Dependency of Risks and Stop-Loss Order1," ASTIN Bulletin, Cambridge University Press, vol. 26(2), pages 201-212, November.
    4. Cheung, Ka Chun, 2006. "Optimal portfolio problem with unknown dependency structure," Insurance: Mathematics and Economics, Elsevier, vol. 38(1), pages 167-175, February.
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    Cited by:

    1. Hau, Arthur, 2010. "Comparative statics of changes in risk on monotonically and partially responsive kinked payoffs," European Journal of Operational Research, Elsevier, vol. 201(1), pages 267-276, February.
    2. Manesh, Sirous Fathi & Khaledi, Baha-Eldin & Dhaene, Jan, 2016. "Optimal allocation of policy deductibles for exchangeable risks," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 87-92.
    3. Zhuang, Weiwei & Chen, Zijin & Hu, Taizhong, 2009. "Optimal allocation of policy limits and deductibles under distortion risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 409-414, June.
    4. Manesh, Sirous Fathi & Khaledi, Baha-Eldin, 2015. "Allocations of policy limits and ordering relations for aggregate remaining claims," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 9-14.
    5. Maria Mercè Claramunt & Maite Màrmol, 2020. "Refundable deductible insurance," Working Papers hal-02909299, HAL.
    6. Cai, Jun & Wei, Wei, 2014. "Some new notions of dependence with applications in optimal allocation problems," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 200-209.
    7. Wei Wei, 2018. "Properties of Stochastic Arrangement Increasing and Their Applications in Allocation Problems," Risks, MDPI, vol. 6(2), pages 1-12, April.
    8. Cheung, Ka Chun, 2009. "Applications of conditional comonotonicity to some optimization problems," Insurance: Mathematics and Economics, Elsevier, vol. 45(1), pages 89-93, August.
    9. Xu, Maochao & Hu, Taizhong, 2012. "Stochastic comparisons of capital allocations with applications," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 293-298.
    10. Zhang, Yiying & Zhao, Peng, 2015. "Comparisons on aggregate risks from two sets of heterogeneous portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 124-135.
    11. Hua, Lei & Cheung, Ka Chun, 2008. "Worst allocations of policy limits and deductibles," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 93-98, August.
    12. Pan Xiaoqing & Li Xiaohu, 2017. "On capital allocation for stochastic arrangement increasing actuarial risks," Dependence Modeling, De Gruyter, vol. 5(1), pages 145-153, January.
    13. You, Yinping & Li, Xiaohu, 2015. "Functional characterizations of bivariate weak SAI with an application," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 225-231.
    14. Hua, Lei & Cheung, Ka Chun, 2008. "Stochastic orders of scalar products with applications," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 865-872, June.
    15. Yinping You & Xiaohu Li & Rui Fang, 2021. "On coverage limits and deductibles for SAI loss severities," Annals of Operations Research, Springer, vol. 297(1), pages 341-357, February.
    16. Zhang, Yiying & Cheung, Ka Chun, 2020. "On the increasing convex order of generalized aggregation of dependent random variables," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 61-69.
    17. Halim Zeghdoudi & Meriem Bouhadjar & Mohamed Riad Remita, 2014. "On Stochastic Orders and its applications : Policy limits and Deductibles," Papers 1411.1609, arXiv.org, revised Jan 2015.
    18. Qi Feng & J. George Shanthikumar, 2018. "Arrangement Increasing Resource Allocation," Methodology and Computing in Applied Probability, Springer, vol. 20(3), pages 935-955, September.
    19. Lu, ZhiYi & Meng, LiLi, 2011. "Stochastic comparisons for allocations of policy limits and deductibles with applications," Insurance: Mathematics and Economics, Elsevier, vol. 48(3), pages 338-343, May.

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