Optimal insurance under Wang’s premium principle

✍ Scribed by Virginia R. Young

• Book ID: 104300183
• Publisher: Elsevier Science
• Year: 1999
• Tongue: English
• Weight: 111 KB
• Volume: 25
• Category: Article
• ISSN: 0167-6687
• DOI: 10.1016/s0167-6687(99)00012-8

✦ Synopsis

Wang et al. (1997)

[Axiomatic characterization of insurance prices. Insurance: Mathematics & Economics 21(2), [173][174][175][176][177][178][179][180][181][182][183] propose axioms for pricing insurance that characterize the premium principle of Wang (1996) [Premium calculation by transforming the layer premium density. ASTIN Bulletin 26,. Under this premium principle, the price to insure a given risk is the expectation of the risk with respect to a distorted probability. In this paper, we assume that prices are given by Wang's premium principle. We determine the optimal indemnity contract for a risk-averse buyer who acts to maximize expected utility. Deprez and Gerber (1985) [On convex principles of premium calculation. Insurance: Mathematics & Economics 4, 179-189] describe the optimal insurance for convex premium principles that are Gâteaux differentiable. Wang's premium principle is convex, but it is not Gâteaux differentiable; thus, we extend the work of Deprez and Gerber (1985) to this special case.