Optimal reinsurance under the α-maxmin mean-variance criterion

Liming Zhang and Bin Li

Insurance: Mathematics and Economics, 2021, vol. 101, issue PB, 225-239

Abstract: This paper studies an optimal reinsurance problem under the α-maximin mean-variance criterion proposed in Li et al. (2016). We generalize (Li et al., 2016) by considering a full range of ambiguity preferences and allowing for general form reinsurance contracts. For equilibrium reinsurance strategies, we find that the excess-of-loss form is unique for ambiguity-averse preferences but may not be optimal or unique for ambiguity-loving preferences. An insurer who is more ambiguous to the reference measure retains less risk if she is ambiguity-averse but does not necessarily retain more risk if she is ambiguity-loving and her ambiguity level is high. Our finding suggests that a highly ambiguity-loving preference may only manifest when the ambiguity level is very low, and hence, consistent with empirical studies, demonstrates that decision makers can be ambiguity-loving if they consider themselves more knowledgeable or competent than the other players.

Keywords: Alpha-maxmin mean-variance criterion; Optimal reinsurance; Ambiguity-loving preferences; Non-unique equilibrium; Time inconsistency (search for similar items in EconPapers)
JEL-codes: C61 C62 C73 G22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:101:y:2021:i:pb:p:225-239

DOI: 10.1016/j.insmatheco.2021.08.004

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