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OPTIMAL REINSURANCE DESIGN WITH DISTORTION RISK MEASURES AND ASYMMETRIC INFORMATION

Published online by Cambridge University Press:  29 March 2021

Tim J. Boonen Open the ORCID record for Tim J. Boonen [Opens in a new window]  and
Yiying Zhang Open the ORCID record for Yiying Zhang [Opens in a new window]
Tim J. Boonen
Affiliation:
Amsterdam School of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB, Amsterdam, The Netherlands, E-Mail: t.j.boonen@uva.nl
Yiying Zhang*
Affiliation:
School of Statistics and Data Science, LPMC and KLMDASR, Nankai University, Tianjin300071, P.R. China, E-Mail: zhangyiying@outlook.com
*
E-Mail: zhangyiying@outlook.com
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Abstract

This paper studies a problem of optimal reinsurance design under asymmetric information. The insurer adopts distortion risk measures to quantify his/her risk position, and the reinsurer does not know the functional form of this distortion risk measure. The risk-neutral reinsurer maximizes his/her net profit subject to individual rationality and incentive compatibility constraints. The optimal reinsurance menu is succinctly derived under the assumption that one type of insurer has a larger willingness to pay than the other type of insurer for every risk. Some comparative analyses are given as illustrations when the insurer adopts the value at risk or the tail value at risk as preferences.

Keywords

Optimal reinsuranceasymmetric informationindividual rationalityincentive compatibilitydistortion risk measureC61G22G32
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 2 , May 2021 , pp. 607 - 629
Copyright
© 2021 by Astin Bulletin. All rights reserved

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