Non-optimality of a linear combination of proportional and non-proportional reinsurance

✍ Scribed by W Hürlimann

• Publisher: Elsevier Science
• Year: 1999
• Tongue: English
• Weight: 78 KB
• Volume: 24
• Category: Article
• ISSN: 0167-6687
• DOI: 10.1016/s0167-6687(98)00054-7

✦ Synopsis

For the subclass of reinsurance contracts with maximum deductible contained in the class of all bivariate comonotonic riskexchange structures associated to a given risk, we consider optimality with respect to a long-term actuarial mean self-financing property and competitiveness of the insurance premium. For arbitrary varying risks, the linear combination of proportional and stop-loss reinsurance is not optimal unless it is a pure stop-loss contract, at least if the variance premium principle is used to set insurance prices. By known distribution of the risk, it is shown how an optimal deductible of a stop-loss contract can be determined. Some applications to insurance and finance are briefly mentioned.