Optimal Insurance to Maximize RDEU Under a Distortion-Deviation Premium Principle

Xiaoqing Liang, Ruodu Wang and Virginia Young

Papers from arXiv.org

Abstract: In this paper, we study an optimal insurance problem for a risk-averse individual who seeks to maximize the rank-dependent expected utility (RDEU) of her terminal wealth, and insurance is priced via a general distortion-deviation premium principle. We prove necessary and sufficient conditions satisfied by the optimal solution and consider three ambiguity orders to further determine the optimal indemnity. Finally, we analyze examples under three distortion-deviation premium principles to explore the specific conditions under which no insurance or deductible insurance is optimal.

Date: 2021-07, Revised 2022-02
New Economics Papers: this item is included in nep-ias, nep-rmg and nep-upt
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Citations: View citations in EconPapers (5)

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