Pricing Reinsurance Contracts

A. Consiglio () and Domenico De Giovanni ()
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A. Consiglio: University of Palermo
Domenico De Giovanni: University of Calabria

Chapter Chapter 6 in Stochastic Optimization Methods in Finance and Energy, 2011, pp 125-139 from Springer

Abstract: Abstract Pricing and hedging insurance contracts is hard to perform if we subscribe to the hypotheses of the celebrated Black and Scholes model. Incomplete market models allow for the relaxation of hypotheses that are unrealistic for insurance and reinsurance contracts. One such assumption is the tradeability of the underlying asset. To overcome this drawback, we propose in this chapter a stochastic programming model leading to a superhedging portfolio whose final value is at least equal to the insurance final liability. A simple model extension, furthermore, is shown to be sufficient to determine an optimal reinsurance protection for the insurer: we propose a conditional value at risk (VaR) model particularly suitable for large-scale problem instances and rationale from a risk theoretic point of view.

Keywords: Reinsurance; Option pricing; Incomplete markets (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-1-4419-9586-5_6

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DOI: 10.1007/978-1-4419-9586-5_6

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