Concave Distortion Risk Minimizing Reinsurance Design under Adverse Selection
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AbstractThis 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.
All Author(s) ListKa Chun Cheung, Sheung Chi Phillip Yam, Fei Lung Yuen, Yiying Zhang
Journal nameInsurance: Mathematics and Economics
Year2020
Month3
Volume Number91
PublisherElsevier
Place of PublicationUSA
Pages155 - 165
ISSN0167-6687
eISSN1873-5959
LanguagesEnglish-United States
KeywordsRisk management, Principal–agent problem, Distortion risk measure, Incentive compatibility, Individual rationality

Last updated on 2020-26-10 at 00:18