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Hokkaido University Preprint Series in Mathematics >
Optimal intertemporal risk allocation applied to insurance pricing
| Title: | Optimal intertemporal risk allocation applied to insurance pricing |
| Authors: | Fukuda, Kei Browse this author | | Inoue, Akihiko Browse this author | | Nakano, Yumiharu Browse this author |
| Keywords: | Indifference pricing | | optimal intertemporal risk allocation | | Pareto optimality | | exponential utility | | insurance | | premium calculation method |
| Issue Date: | 2007 |
| Publisher: | Department of Mathematics, Hokkaido University |
| Journal Title: | Hokkaido University Preprint Series in Mathematics |
| Volume: | 882 |
| Start Page: | 1 |
| End Page: | 20 |
| Abstract: | We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of the optimal intertemporal risk allocation by a first order condition. Applying this result to the exponential utility function, we obtain an essentially new type of premium calculation method for a popular type of multi-period insurance contract. This method is simple and can be easily implemented numerically. We see that the results of numerical calculations are well coincident with the risk loading level determined by traditional practices. The results also suggest a possible implied utility approach to insurance pricing. |
| Type: | bulletin (article) |
| URI: | http://hdl.handle.net/2115/69691 |
| Appears in Collections: | 理学院・理学研究院 (Graduate School of Science / Faculty of Science) > Hokkaido University Preprint Series in Mathematics
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Submitter: 数学紀要登録作業用
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