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- Publisher Website: 10.1007/s00780-023-00497-y
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Article: Optimal insurance under maxmin expected utility
Title | Optimal insurance under maxmin expected utility |
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Authors | |
Keywords | Ambiguity Heterogeneous beliefs Maxmin expected utility Multiple priors Optimal insurance |
Issue Date | 2023 |
Citation | Finance and Stochastics, 2023, v. 27, n. 2, p. 467-501 How to Cite? |
Abstract | We examine a problem of demand for insurance indemnification, when the insured is sensitive to ambiguity and behaves according to the maxmin expected utility model of Gilboa and Schmeidler (J. Math. Econ. 18:141–153, 1989), whereas the insurer is a (risk-averse or risk-neutral) expected-utility maximiser. We characterise optimal indemnity functions both with and without the customary ex ante no-sabotage requirement on feasible indemnities, and for both concave and linear utility functions for the two agents. This allows us to provide a unifying framework in which we examine the effects of the no-sabotage condition, of marginal utility of wealth, of belief heterogeneity, as well as of ambiguity (multiplicity of priors) on the structure of optimal indemnity functions. In particular, we show how a singularity in beliefs leads to an optimal indemnity function that involves full insurance on an event to which the insurer assigns zero probability, while the decision maker assigns a positive probability. We examine several illustrative examples, and we provide numerical studies for the case of a Wasserstein and a Rényi ambiguity set. |
Persistent Identifier | http://hdl.handle.net/10722/328855 |
ISSN | 2023 Impact Factor: 1.1 2023 SCImago Journal Rankings: 0.922 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Birghila, Corina | - |
dc.contributor.author | Boonen, Tim J. | - |
dc.contributor.author | Ghossoub, Mario | - |
dc.date.accessioned | 2023-07-22T06:24:38Z | - |
dc.date.available | 2023-07-22T06:24:38Z | - |
dc.date.issued | 2023 | - |
dc.identifier.citation | Finance and Stochastics, 2023, v. 27, n. 2, p. 467-501 | - |
dc.identifier.issn | 0949-2984 | - |
dc.identifier.uri | http://hdl.handle.net/10722/328855 | - |
dc.description.abstract | We examine a problem of demand for insurance indemnification, when the insured is sensitive to ambiguity and behaves according to the maxmin expected utility model of Gilboa and Schmeidler (J. Math. Econ. 18:141–153, 1989), whereas the insurer is a (risk-averse or risk-neutral) expected-utility maximiser. We characterise optimal indemnity functions both with and without the customary ex ante no-sabotage requirement on feasible indemnities, and for both concave and linear utility functions for the two agents. This allows us to provide a unifying framework in which we examine the effects of the no-sabotage condition, of marginal utility of wealth, of belief heterogeneity, as well as of ambiguity (multiplicity of priors) on the structure of optimal indemnity functions. In particular, we show how a singularity in beliefs leads to an optimal indemnity function that involves full insurance on an event to which the insurer assigns zero probability, while the decision maker assigns a positive probability. We examine several illustrative examples, and we provide numerical studies for the case of a Wasserstein and a Rényi ambiguity set. | - |
dc.language | eng | - |
dc.relation.ispartof | Finance and Stochastics | - |
dc.subject | Ambiguity | - |
dc.subject | Heterogeneous beliefs | - |
dc.subject | Maxmin expected utility | - |
dc.subject | Multiple priors | - |
dc.subject | Optimal insurance | - |
dc.title | Optimal insurance under maxmin expected utility | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1007/s00780-023-00497-y | - |
dc.identifier.scopus | eid_2-s2.0-85149814729 | - |
dc.identifier.volume | 27 | - |
dc.identifier.issue | 2 | - |
dc.identifier.spage | 467 | - |
dc.identifier.epage | 501 | - |
dc.identifier.eissn | 1432-1122 | - |
dc.identifier.isi | WOS:000951058300001 | - |