 Optimal reinsurance under general law-invariant risk measuresK.C. Cheung, K.C.J. Sung, S.C.P. Yam and S.P. Yung Scandinavian Actuarial Journal, 2014, vol. 2014, issue 1, 72-91 Abstract: In recent years, general risk measures play an important role in risk management in both finance and insurance industry. As a consequence, there is an increasing number of research on optimal reinsurance decision problems using risk measures beyond the classical expected utility framework. In this paper, we first show that the stop-loss reinsurance is an optimal contract under law-invariant convex risk measures via a new simple geometric argument. A similar approach is then used to tackle the same optimal reinsurance problem under Value at Risk and Conditional Tail Expectation; it is interesting to note that, instead of stop-loss reinsurances, insurance layers serve as the optimal solution. These two results highlight that law-invariant convex risk measure is better and more robust, in the sense that the corresponding optimal reinsurance still provides the protection coverage against extreme loss irrespective to the potential increment of its probability of occurrence, to expected larger claim than Value at Risk and Conditional Tail Expectation which are more commonly used. Several illustrative examples will be provided. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:sactxx:v:2014:y:2014:i:1:p:72-91 Ordering information: This journal article can be ordered from DOI: 10.1080/03461238.2011.636880 Access Statistics for this article Scandinavian Actuarial Journal is currently edited by Boualem Djehiche More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals |
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