Optimal Insurance to Minimize the Probability of Ruin: Inverse Survival Function Formulation

Bahman Angoshtari and Virginia R. Young

Papers from arXiv.org

Abstract: We find the optimal indemnity to minimize the probability of ruin when premium is calculated according to the distortion premium principle with a proportional risk load, and admissible indemnities are such that both the indemnity and retention are non-decreasing functions of the underlying loss. We reformulate the problem with the inverse survival function as the control variable and show that deductible insurance with maximum limit is optimal. Our main contribution is in solving this problem via the inverse survival function.

Date: 2020-12
New Economics Papers: this item is included in nep-ias and nep-rmg
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