Optimal Insurance Coverage With Default Risk

15 Pages Posted: 1 May 2019 Last revised: 21 Aug 2020

See all articles by Liang Hong

Liang Hong

The University of Texas at Dallas

Zhiqiang Yan

Western Illinois University - Department of Marketing and Finance

Boyi Zhuang

The University of Alabama - ACIIR

Date Written: March 31, 2019

Abstract

This articles re-examines a standard result on the demand for insurance ("full coverage with a fair premium and partial coverage with a loaded premium"') in the presence of a default risk. It is established that the optimal insurance coverage is always partial coverage if the default is total, irrespective of whether the premium is fair or loaded. For partial default, it is demonstrated in both the fair premium case and the loaded premium case that the optimal insurance coverage might be either full coverage or partial coverage for coinsurance, deductible insurance and upper-limit insurance.

Keywords: Mossin's Theorem; total default; partial default; coinsurance; deductible insurance; upper-limit insurance

Suggested Citation

Hong, Liang and Yan, Zhiqiang and Zhuang, Boyi, Optimal Insurance Coverage With Default Risk (March 31, 2019). Available at SSRN: https://ssrn.com/abstract=3363212 or http://dx.doi.org/10.2139/ssrn.3363212

Liang Hong (Contact Author)

The University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Zhiqiang Yan

Western Illinois University - Department of Marketing and Finance ( email )

Macomb, IL 61455
United States

Boyi Zhuang

The University of Alabama - ACIIR ( email )

1500 Greensboro Ave Suite 2
Box 870397
Tuscaloosa, AL Alabama 35401
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
18
Abstract Views
310
PlumX Metrics