Optimal Reinsurance Design Based on Economic Premium Principle

27 Pages Posted: 9 May 2023

See all articles by Kuangya Li

Kuangya Li

Jiangxi University of Finance and Economics

Bichen Zuo

Jiangxi University of Finance and Economics

Honglang Wan

Jiangxi University of Finance and Economics

Lanxin Zhou

Huaqin Hundred Billion Industrial Park Headquarters

Date Written: August 25, 2022

Abstract

In this paper, we study optimal reinsurance based on the economic premium principle and distortion risk measures. The convex combination of the distortion risk measurement is constructed from the perspectives of insure and reinsurer. By minimizing the value of objective function, the piecewise linear is optimal. Then, we select two special distortion risk measures (value-at-risk (VaR) and conditional value-at-risk (CVaR)), for further analysis. The impact of different market factors is considered on optimal reinsurance. Finally, we further assume that the joint distribution of the losses and market factors has a copula with quadratic sections. We obtain the optimal reinsurance in a relatively simple form. At last, we simulate and analyze the results.

Keywords: VaR, CVaR

JEL Classification: JE27

Suggested Citation

Li, Kuangya and Zuo, Bichen and Wan, Honglang and Zhou, Lanxin, Optimal Reinsurance Design Based on Economic Premium Principle (August 25, 2022). Available at SSRN: https://ssrn.com/abstract=4439437 or http://dx.doi.org/10.2139/ssrn.4439437

Kuangya Li (Contact Author)

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Bichen Zuo

Jiangxi University of Finance and Economics

South Lushan Road
Nanchang, Jiangxi 330013
China

Honglang Wan

Jiangxi University of Finance and Economics

South Lushan Road
Nanchang, Jiangxi 330013
China

Lanxin Zhou

Huaqin Hundred Billion Industrial Park Headquarters

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