Optimal insurance contract under a value-at-risk constraint

Hung-Hsi Huang ()

The Geneva Papers on Risk and Insurance Theory, 2006, vol. 31, issue 2, 91-110

Abstract: This study develops an optimal insurance contract endogenously under a value-at-risk (VaR) constraint. Although Wang et al. [2005] had examined this problem, their assumption implied that the insured is risk neutral. Consequently, this study extends Wang et al. [2005] and further considers a more realistic situation where the insured is risk averse. The study derives the optimal insurance contract as a single deductible insurance when the VaR constraint is redundant or as a double deductible insurance when the VaR constraint is binding. Finally, this study discusses the optimal coverage level from common forms of insurances, including deductible insurance, upper-limit insurance, and proportional coinsurance. Copyright Springer Science + Business Media, LLC 2006

Keywords: Value-at-risk; Optimal insurance; Deductible; Policy limit; Coinsurance (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:kap:geneva:v:31:y:2006:i:2:p:91-110

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DOI: 10.1007/s10713-006-0557-5

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