Optimal Insurance Design Under a Value-at-Risk Framework

Ching-Ping Wang (), David Shyu () and Hung-Hsi Huang ()

The Geneva Papers on Risk and Insurance Theory, 2005, vol. 30, issue 2, 161-179

Abstract: This study designs an optimal insurance policy form endogenously, assuming the objective of the insured is to maximize expected final wealth under the Value-at-Risk (VaR) constraint. The optimal insurance policy can be replicated using three options, including a long call option with a small strike price, a short call option with a large strike price, and a short cash-or-nothing call option. Additionally, this study also calculates the optimal insurance levels for these models when we restrict the indemnity to be one of three common forms: a deductible policy, an upper-limit policy, or a policy with proportional coinsurance. Copyright Springer Science + Business Media, Inc. 2005

Keywords: value at risk; optimal insurance; deductible; policy limit; coinsurance (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s10713-005-4677-0

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