Budget-constrained optimal reinsurance design under coherent risk measures

Ka Chun Cheung, Wing Fung Chong and Ambrose Lo

Scandinavian Actuarial Journal, 2019, vol. 2019, issue 9, 729-751

Abstract: Reinsurance is a versatile risk management strategy commonly employed by insurers to optimize their risk profile. In this paper, we study an optimal reinsurance design problem minimizing a general law-invariant coherent risk measure of the net risk exposure of a generic insurer, in conjunction with a general law-invariant comonotonic additive convex reinsurance premium principle and a premium budget constraint. Due to its intrinsic generality, this contract design problem encompasses a wide body of optimal reinsurance models commonly encountered in practice. A three-step solution scheme is presented. Firstly, the objective and constraint functions are exhibited in the so-called Kusuoka's integral representations. Secondly, the mini-max theorem for infinite dimensional spaces is applied to interchange the infimum on the space of indemnities and the supremum on the space of probability measures. Thirdly, the recently developed Neyman–Pearson methodology due to Lo (2017a) is adopted to solve the resulting infimum problem. Analytic and transparent expressions for the optimal reinsurance policy are provided, followed by illustrative examples.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/03461238.2019.1598891 (text/html)
Access to full text is restricted to subscribers.

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:taf:sactxx:v:2019:y:2019:i:9:p:729-751

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/sact20

DOI: 10.1080/03461238.2019.1598891

Access Statistics for this article

Scandinavian Actuarial Journal is currently edited by Boualem Djehiche

More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().