Demand for Insurance in a Portfolio Setting
GENEVA PAPERS ON RISK AND INSURANCE THEORY, Vol. 20 No. 2, December 1995
Posted: 14 Jul 1998
This paper takes an additional step towards analyzing the demand for insurance in the context of a portfolio model. An investor is endowed with a portfolio containing a risky and riskless asset, that can be augmented by purchasing insurance. Here, insurance is paid for by reducing the quantity of the risky insurable asset, holding the quantity of the riskless asset fixed. In the standard insurance demand model, insurance is paid for by reducing the amount of the riskless asset. This distinction leads to a different insurance demand function because the opportunity cost of purchasing insurance is now random.
JEL Classification: G22
Suggested Citation: Suggested Citation