TY - JOUR
T1 - Risk sharing with multiple indemnity environments
AU - Asimit, Alexandru V.
AU - Boonen, Tim J.
AU - Chi, Yichun
AU - Chong, Wing Fung
N1 - Funding Information:
The authors are grateful to anonymous reviewers for their careful reading and insightful comments. The authors thank Léonard Vincent for his helpful comment on the paper. Yichun Chi is supported by the grant from National Natural Science Foundation of China (No. 11971505 ). Wing Fung Chong is supported by, start-up funds provided by the Department of Mathematics and Department of Statistics, University of Illinois at Urbana-Champaign, and by a Centers of Actuarial Excellence (CAE) Research Grant (2019–2021) from the Society of Actuaries (SOA). Any opinions, finding, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the SOA.
Publisher Copyright:
© 2021 The Authors
PY - 2021/12/1
Y1 - 2021/12/1
N2 - 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.
AB - 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.
KW - Environment-specific layer indemnities
KW - Heterogeneous beliefs
KW - Multiple risk environments
KW - Optimal insurance
KW - Risk management
KW - Tail Value-at-Risk
KW - Value-at-Risk
UR - http://www.scopus.com/inward/record.url?scp=85106296052&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2021.03.012
DO - 10.1016/j.ejor.2021.03.012
M3 - Article
SN - 0377-2217
VL - 295
SP - 587
EP - 603
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 2
ER -