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Risk sharing with multiple indemnity environments

Author

Listed:
  • Asimit, Alexandru V.
  • Boonen, Tim J.
  • Chi, Yichun
  • Chong, Wing Fung
Abstract
Optimal risk sharing arrangements have been substantially studied in the literature, from the aspects of generalizing objective functions, incorporating more business constraints, and investigating different optimality criteria. This paper proposes an insurance model with multiple risk environments. We study the case where the two agents are endowed with the Value-at-Risk or the Tail Value-at-Risk, or when both agents are risk-neutral but have heterogeneous beliefs regarding the underlying probability distribution. We show that layer-type indemnities, within each risk environment, are Pareto optimal, which may be environment-specific. From Pareto optimality, we get that the premium can be chosen in a given interval, and we propose to allocate the gains from risk sharing equally between the buyer and seller.

Suggested Citation

  • Asimit, Alexandru V. & Boonen, Tim J. & Chi, Yichun & Chong, Wing Fung, 2021. "Risk sharing with multiple indemnity environments," European Journal of Operational Research, Elsevier, vol. 295(2), pages 587-603.
    • Handle: RePEc:eee:ejores:v:295:y:2021:i:2:p:587-603
    DOI: 10.1016/j.ejor.2021.03.012
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    Cited by:

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    3. Lee, Hangsuck & Ha, Hongjun & Lee, Minha, 2024. "A sharing rule for multi-period interest-sensitive insurance contracts," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    4. Lee, Hangsuck & Lee, Minha & Hong, Jimin, 2022. "Optimal insurance under moral hazard in loss reduction," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    5. Claire Mouminoux & Christophe Dutang & Stéphane Loisel & Hansjoerg Albrecher, 2022. "On a Markovian Game Model for Competitive Insurance Pricing," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 1061-1091, June.
    6. Peng Liu & Andreas Tsanakas & Yunran Wei, 2024. "Risk sharing with Lambda value at risk under heterogeneous beliefs," Papers 2408.03147, arXiv.org, revised Sep 2024.
    7. Wing Fung Chong & Gechun Liang, 2024. "Robust forward investment and consumption under drift and volatility uncertainties: A randomization approach," Papers 2410.01378, arXiv.org.
    8. Felix-Benedikt Liebrich, 2021. "Risk sharing under heterogeneous beliefs without convexity," Papers 2108.05791, arXiv.org, revised May 2022.

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