On applying approximations to find optimal excess of loss reinsurance

Batsyn Mikhail and Batsyna Ekaterina
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Batsyn Mikhail: National Research University Higher School of Economics
Batsyna Ekaterina: National Research University Higher School of Economics

Бизнес-информатика, 2012, issue 4 (22), 69-75

Abstract: In this paper we consider the problem of finding an optimal excess of loss reinsurance which maximizes the reliability (probability of no ruin) of the insurance company. We apply two approximate approaches to calculate the distribution of total payments. The first approach is based on normal approximation of the payments distribution. Using this approximation we have derived an integral equation on the optimal retention limit. The second approach is based on simulation techniques. To test the precision of our approaches we use an exact formula for the distribution of total payments known for the case when losses in one insured event are distributed uniformly.

Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:scn:025686:14485207

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