Concave distortion risk minimizing reinsurance design under adverse selection
This article makes use of the well-known Principal–Agent (multidimensional screening) model commonly used in economics to analyze a monopolistic reinsurance market in the presence of adverse selection, where the risk preference of each insurer is guided by its concave distortion risk measure of the...
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Published in | Insurance, mathematics & economics Vol. 91; pp. 155 - 165 |
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Main Authors | , , , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.03.2020
Elsevier Sequoia S.A |
Subjects | |
Online Access | Get full text |
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Summary: | This article makes use of the well-known Principal–Agent (multidimensional screening) model commonly used in economics to analyze a monopolistic reinsurance market in the presence of adverse selection, where the risk preference of each insurer is guided by its concave distortion risk measure of the terminal wealth position; while the reinsurer, under information asymmetry, aims to maximize its expected profit by designing an optimal policy provision (menu) of “shirt-fit” stop-loss reinsurance contracts for every insurer of either type of low or high risk. In particular, the most representative case of Tail Value-at-Risk (TVaR) is further explored in detail so as to unveil the underlying insight from economics perspective. |
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ISSN: | 0167-6687 1873-5959 |
DOI: | 10.1016/j.insmatheco.2020.02.001 |