Mean-variance insurance design under heterogeneous beliefs

Chen, Yanhong1; Jiang, Wenjun2; Zhang, Yiying3

2023-12-01

10.21314/JOR.2023.011

JOURNAL OF RISK   影响因子和分区

1465-1211

1755-2842

In this paper we study an optimal insurance problem within the mean-variance framework for the case when the insured and insurer hold heterogeneous beliefs about the loss distribution. The implicit characterization of the optimal ceded loss function is obtained first, and we then parameterize the optimal ceded loss function in an explicit way for a general setup in which the insurer's belief Q either is or is not absolutely continuous with respect to the insured's belief P. We also show that the stop-loss function is optimal for the insured when the likelihood ratio function of the two parties' beliefs is decreasing. The connection between our framework and the expected utility framework is discussed. The situation where the insured can reduce both the mean and the variance of its loss through purchasing insurance is also investigated. Some analytical and numerical examples are presented to illustrate our results.

optimal insurance belief heterogeneity mean-variance optimization stop-loss function efficient frontier

SSCI

英语

通讯

National Natural Science Foundation of China["12101336","11901184"] ; Natural Science Foundation of Hunan Province[2020JJ5025] ; Natural Sciences and Engineering Research Council of Canada[RGPIN-2020-04204] ; Guangdong Basic and Applied Basic Research Foundation[2023A1515011806] ; Shenzhen Fundamental Research General Program[JCYJ20230807093312026]

Business & Economics

Business, Finance

WOS:001171244100005

INCISIVE MEDIA

Web of Science

1.Hunan Univ, Coll Finance & Stat, Lushan South Rd, Changsha 410082, Peoples R China
2.Univ Calgary, Dept Math & Stat, 2500 Univ Dr Northwest, Calgary, AB T2N 1N4, Canada
3.Southern Univ Sci & Technol, Dept Math, 1088 Xueyuan Ave, Shenzhen 518055, Peoples R China

Chen, Yanhong,Jiang, Wenjun,Zhang, Yiying. Mean-variance insurance design under heterogeneous beliefs[J]. JOURNAL OF RISK,2023,26(2).

Chen, Yanhong,Jiang, Wenjun,&Zhang, Yiying.(2023).Mean-variance insurance design under heterogeneous beliefs.JOURNAL OF RISK,26(2).

Chen, Yanhong,et al."Mean-variance insurance design under heterogeneous beliefs".JOURNAL OF RISK 26.2(2023).