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A unifying approach to constrained and unconstrained optimal reinsurance

Yuxia Huang and Chuancun Yin

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Abstract: In this paper, we study two classes of optimal reinsurance models from perspectives of both insurers and reinsurers by minimizing their convex combination where the risk is measured by a distortion risk measure and the premium is given by a distortion premium principle. Firstly, we show that how optimal reinsurance models for the unconstrained optimization problem and constrained optimization problems can be formulated in a unified way. Secondly, we propose a geometric approach to solve optimal reinsurance problems directly. This paper considers a class of increasing convex ceded loss functions and derives the explicit solutions of the optimal reinsurance which can be in forms of quota-share, stop-loss, change-loss, the combination of quota-share and change-loss or the combination of change-loss and change-loss with different retentions. Finally, we consider two specific cases: Value at Risk (VaR) and Tail Value at Risk (TVaR).

New Economics Papers: this item is included in nep-rmg
Date: 2018-07
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