Non-zero-sum Reinsurance Games Subject to Ambiguous Correlations

Operations Research Letters. 44, 578-586, 2016

20 Pages Posted: 23 Jun 2020

See all articles by Chi Seng Pun

Chi Seng Pun

Nanyang Technological University (NTU) - School of Physical and Mathematical Sciences

Chi Chung Siu

Department of Mathematics, Statistics and Insurance, School of Decision Sciences, The Hang Seng University of Hong Kong

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics

Date Written: June 29, 2016

Abstract

This paper studies the economic implications of ambiguous correlation in a non-zero-sum game between two insurers. We establish the general framework of Nash equilibrium for the coupled optimization problems. For the constant absolute risk aversion (CARA) insurers, we show that the equilibrium reinsurance strategies admit closed-form solutions. Our results indicate that the ambiguous correlation leads to an increase in the equilibrium demand of reinsurance protection for both insurers. Numerical studies examine the effect on the quality of the correlation estimations.

Keywords: Reinsurance, Non-Zero-Sum Stochastic Differential Game, Relative Performance Concerns, Ambiguous Correlation, $g$-Brownian Motion, Hamiltonian-Jacobi-Bellman-Isaacs Equation, Nash Equilibrium, Externalities

Suggested Citation

Pun, Chi Seng and Siu, Chi Chung and Wong, Hoi Ying, Non-zero-sum Reinsurance Games Subject to Ambiguous Correlations (June 29, 2016). Operations Research Letters. 44, 578-586, 2016, Available at SSRN: https://ssrn.com/abstract=3613768 or http://dx.doi.org/10.2139/ssrn.3613768

Chi Seng Pun (Contact Author)

Nanyang Technological University (NTU) - School of Physical and Mathematical Sciences ( email )

SPMS-MAS-05-22
21 Nanyang Link
Singapore, 637371
Singapore
(+65) 6513 7468 (Phone)

HOME PAGE: http://personal.ntu.edu.sg/cspun/

Chi Chung Siu

Department of Mathematics, Statistics and Insurance, School of Decision Sciences, The Hang Seng University of Hong Kong ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics ( email )

Shatin, N.T.
Hong Kong

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