Optimal reinsurance under multiple attribute decision making

We apply methods from multiple attribute decision making (MADM) to the problem of selecting an optimal reinsurance level. In particular, we apply the Technique for Order of Preference by Similarity to Ideal Solution method with Mahalanobis distance. We consider the classical risk model under a reins...

Full description

Saved in:
Bibliographic Details
Published inAnnals of actuarial science Vol. 10; no. 1; pp. 65 - 86
Main Authors Bulut Karageyik, Başak, Dickson, David C.M.
Format Journal Article
LanguageEnglish
Published Cambridge, UK Cambridge University Press 01.03.2016
Subjects
Case studies
Claims processing
Decision making
Expected utility
Insurance premiums
Mathematical models
Policyholders
Probability
Random variables
Reinsurance
Retention
Risk management
Studies
Ruin probability
Multiple attribute decision making
Reinsurance
TOPSIS
Translated gamma process
Online AccessGet full text

Cover

More Information
Summary:We apply methods from multiple attribute decision making (MADM) to the problem of selecting an optimal reinsurance level. In particular, we apply the Technique for Order of Preference by Similarity to Ideal Solution method with Mahalanobis distance. We consider the classical risk model under a reinsurance arrangement – either excess of loss or proportional – and we consider scenarios that have the same finite time ruin probability. For each of these scenarios we calculate three quantities: released capital, expected profit and expected utility of resulting wealth. Using these inputs, we apply MADM to find optimal retention levels. We compare and contrast our findings with those when decisions are based on a single attribute.
ISSN:1748-4995
1748-5002
DOI:10.1017/S1748499515000123