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Guaranteed Optimization in Insurance of Catastrophic Risks

Author

Listed:
  • B.V. Digas
  • Y.M. Ermoliev
  • A.V. Kryazhimskii

Abstract

The proposed approach to the insurance of regionally distributed property against risk catastrophes is based on finding statistically robust coverages of the insurance companies. Such coverages guarantee that all companies survive no matter what scenario of the catastrophe from a given scenarios takes place. We describe a sequential algorithm that computed the minimum of the companies' premiums and finds optimal coverages. A step of the algorithm is interpreted as searching a minimum-premium coverage that eliminates a current aggregate risk. The latter aggregates the risks of all companies with respect to all admissible catastrophe scenarios in a "fair" manner: the higher is the individual risk, the greater is its contribution to the aggregate risk. To justify the convergence of the algorithm we suggest a new global optimization procedure for a class of nonconvex minimization problems.

Suggested Citation

  • B.V. Digas & Y.M. Ermoliev & A.V. Kryazhimskii, 1998. "Guaranteed Optimization in Insurance of Catastrophic Risks," Working Papers ir98082, International Institute for Applied Systems Analysis.
    • Handle: RePEc:wop:iasawp:ir98082
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    References listed on IDEAS

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    1. B.V. Digas, 1998. "Generators of Seismic Events and Losses: Scenario-based Insurance Optimization," Working Papers ir98079, International Institute for Applied Systems Analysis.
    2. T.Y. Ermolieva, 1997. "The Design of Optimal Insurance Decisions in the Presence of Catastrophic Risks," Working Papers ir97068, International Institute for Applied Systems Analysis.
    3. Y.M. Ermoliev & T.Y. Ermolieva & G.J. MacDonald & V.I. Norkin, 1998. "On the Design of Catastrophic Risk Portfolios," Working Papers ir98056, International Institute for Applied Systems Analysis.
    4. Y.M. Ermoliev & A.V. Kryazhimskii & A. Ruszczynski, 1995. "Constraint Aggregation Principle in Convex Optimization," Working Papers wp95015, International Institute for Applied Systems Analysis.
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    1. B.V. Digas, 1998. "Generators of Seismic Events and Losses: Scenario-based Insurance Optimization," Working Papers ir98079, International Institute for Applied Systems Analysis.

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