Non-zero-sum Reinsurance Games Subject to Ambiguous Correlations
Operations Research Letters. 44, 578-586, 2016
20 Pages Posted: 23 Jun 2020
Date Written: June 29, 2016
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
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