AN ECONOMIC PREMIUM PRINCIPLE UNDER THE DUAL THEORY OF THE SMOOTH AMBIGUITY MODEL

AbstractThis study considers a pure exchange economy with insurance against ambiguous loss. Ambiguity preferences are represented by the dual theory of the smooth ambiguity model from Iwaki and Osaki (2014). The economic premium principle of Bühlmann (1980, 1984) is extended to ambiguity. We also perform some comparative statics and present sufficient conditions under which an increase in ambiguity aversion increases insurance demand and insurance premiums. Contrary to the result in Tsanakas and Christofides (2006), the optimal demand for insurance is not always comonotonic, because our model permits an economy comprising both ambiguity averse and ambiguity loving agents.

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Comparative Statics of Oligopoly Equilibrium in a Pure Exchange Economy

SSRN Electronic Journal ◽

10.2139/ssrn.1744661 ◽

2011 ◽

Author(s):

Somdeb Lahiri

Keyword(s):

Exchange Economy ◽

Comparative Statics ◽

Pure Exchange ◽

Pure Exchange Economy

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Equilibrium in a Reinsurance Syndicate; Existence, Uniqueness and Characterization

Astin Bulletin ◽

10.2143/ast.23.2.2005091 ◽

1993 ◽

Vol 23 (2) ◽

pp. 185-211 ◽

Cited By ~ 51

Author(s):

Knut K. Aase

Keyword(s):

Competitive Equilibrium ◽

Sufficient Conditions ◽

Exchange Economy ◽

Exchange Equilibrium ◽

Optimal Contracts ◽

Pure Exchange ◽

Pure Exchange Economy ◽

The One ◽

Uniqueness Of Equilibrium ◽

Reinsurance Market

AbstractThis paper attempts to give an overview of the pricing of risks in a pure exchange economy, where trade takes place at time zero and where uncertainty is revealed at time one. An economic equilibrium model under uncertainty is formulated, where conditions characterizing a Pareto optimal exchange equilibrium are derived. We present two sets of sufficient conditions for the existence of an equilibrium, and demonstrate how equilibria can be characterized through several examples. Uniqueness of equilibrium is also discussed. Special attention is given to the principal components that the premiums in a reinsurance market must depend upon. We also apply the general theory to the risk exchange problem between a policyholder and an insurer, and in particular we compute market premiums of the resulting optimal contracts.It is emphasized throughout how the formulation of a competitive equilibrium, rather than merely a general risk exchange formulation, is of particular interest in deriving a well-defined and unique set of equilibrium premiums in an insurance market. The theory is put into a framework which is fruitful for extensions beyond the one-period case.

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