Optimal reinsurance with concave ceded loss functions under VaR and CTE risk measures

ZhiYi Lu, LePing Liu and ShengWang Meng

Insurance: Mathematics and Economics, 2013, vol. 52, issue 1, 46-51

Abstract: Most of the studies on optimal reinsurance are from the viewpoint of the insurer and the optimal ceded functions always turn out to be convex. However reinsurance contracts always involve a limit on the ceded loss function in practice, thus it may not be enough to confine the analysis to the class of convex functions only. In this paper, we study the problem of optimal reinsurance under VaR and CTE optimization criteria when the ceded loss functions are in the class of increasing concave functions. By using a simple geometric approach, we prove that under the VaR optimization criterion, the quota-share reinsurance with a policy limit is always optimal, while the full reinsurance with a policy limit is optimal under the CTE optimization criterion. Some illustrative examples are presented.

Keywords: Optimal reinsurance; Value-at-risk (VaR); Conditional tail expectation (CTE); Increasing concave function; Quota-share reinsurance; Full reinsurance; Expectation premium principle (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167668712001357
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:52:y:2013:i:1:p:46-51

DOI: 10.1016/j.insmatheco.2012.10.007

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().