Truncated Stop Loss as Optimal Reinsurance Agreement in One-period Models

Marek Kaluszka

ASTIN Bulletin, 2005, vol. 35, issue 2, 337-349

Abstract: We consider several one-period reinsurance models and derive a rule which minimizes the ruin probability of the cedent for a fixed reinsurance risk premium. The premium is calculated according to the economic principle, generalized zero-utility principle, Esscher principle or mean-variance principles. It turns out that a truncated stop loss is an optimal treaty in the class of all reinsurance contracts. The result is also valid for models not involving ruin probability. An example is the Arrow model with the Kahneman-Tversky value function.

Date: 2005
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