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Optimal intertemporal risk allocation applied to insurance pricing

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Please use this identifier to cite or link to this item:http://doi.org/10.14943/84032

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
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

Submitter: 数学紀要登録作業用

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