Pareto-optimal insurance under robust distortion risk measures

Tim J. Boonen and Wenjun Jiang

European Journal of Operational Research, 2025, vol. 324, issue 2, 690-705

Abstract: This paper delves into the optimal insurance contracting problem from the perspective of Pareto optimality. The potential policyholder (PH) and finitely many insurers all apply distortion risk measures for insurance negotiation and are assumed to be ambiguous about the underlying loss distribution. Ambiguity is modeled via sets of probability measures for each agent, and those sets are generated through Wasserstein balls around possibly different benchmark distributions. We derive the analytical forms of the optimal indemnity functions and the worst-case survival functions from all the parties’ perspectives. We illustrate more implications through numerical examples.

Keywords: Distributed decision making; Pareto-optimal insurance; Robust distortion risk measure; Wasserstein distance (search for similar items in EconPapers)
JEL-codes: C71 G22 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:324:y:2025:i:2:p:690-705

DOI: 10.1016/j.ejor.2025.03.020

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