A general model of insurance and investment risk diversification

Dominique Page and Raymond Tremolieres

Applied Stochastic Models and Data Analysis, 1991, vol. 7, issue 4, 361-370

Abstract: This article presents a model of insurance and investment risk diversification. An in‐depth analysis of the mathematical formulation of the risk is presented. In this regard, we introduce a new concept called the substitution principle to formulate the model rigorously. We show that, if the investment risks are normally non‐linear, the insurance risks are linear in nature. This proves that the well‐known diversification principle has to be viewed differently in finance and in insurance.

Date: 1991
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https://doi.org/10.1002/asm.3150070406

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmda:v:7:y:1991:i:4:p:361-370

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