On Optimal Reinsurance Treaties in Cooperative Game under Heterogeneous Beliefs

32 Pages Posted: 22 Aug 2018 Last revised: 19 Dec 2018

See all articles by Wenjun Jiang

Wenjun Jiang

University of Calgary

Jiandong Ren

University of Western Ontario

Chen Yang

Wuhan University

Hanping Hong

University of Western Ontario

Date Written: Nov 17, 2018

Abstract

In this paper, we study the optimal reinsurance policies as the result of a two-person cooperative game, where both parties in the negotiation are risk averse and are trying to maximize their expected utility. We incorporate information asymmetry by assuming that the insurer and the re-insurer have different beliefs on the distribution of the underlying losses. Our analysis consists of two parts. The first part deals with the situation when the reinsurance premium is fully negotiable; whereas the second part deals with the situation when the premium is determined by an actuarial premium principle. For both parts, we first derive the Pareto-optimal reinsurance contracts, then the reinsurance contracts in the Nash equilibrium as well as in the Kalai-Smorodinsky equilibrium are identified.

Keywords: Cooperative Game, Heterogeneous Beliefs, Expected Utility, Pareto-optimal Reinsurance, Nash Equilibrium, Kalai-Smorodinsky Equilibrium

JEL Classification: C60, C71

Suggested Citation

Jiang, Wenjun and Ren, Jiandong and Yang, Chen and Hong, Hanping, On Optimal Reinsurance Treaties in Cooperative Game under Heterogeneous Beliefs (Nov 17, 2018). Insurance: Mathematics and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2955740 or http://dx.doi.org/10.2139/ssrn.2955740

Wenjun Jiang (Contact Author)

University of Calgary ( email )

612 Campus Place N.W.
University of Calgary
Calgary, Alberta T2N 1N4
Canada

Jiandong Ren

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Chen Yang

Wuhan University ( email )

Wuhan
China

Hanping Hong

University of Western Ontario

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
92
Abstract Views
542
Rank
509,437
PlumX Metrics