Optimal insurance contract under a value-at-risk constraint |
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Authors: | Hung-Hsi Huang |
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Institution: | (1) Department of Business Administration, Southern Taiwan University of Technology, No. 1, Nan-Tai Street, Yung-Kang, Taiwan |
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Abstract: | This study develops an optimal insurance contract endogenously under a value-at-risk (VaR) constraint. Although Wang et al.
2005] had examined this problem, their assumption implied that the insured is risk neutral. Consequently, this study extends
Wang et al. 2005] and further considers a more realistic situation where the insured is risk averse. The study derives the
optimal insurance contract as a single deductible insurance when the VaR constraint is redundant or as a double deductible insurance when the VaR constraint is binding. Finally, this study discusses the optimal coverage level from common forms of insurances,
including deductible insurance, upper-limit insurance, and proportional coinsurance.
JEL Classification G22 |
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Keywords: | Value-at-risk Optimal insurance Deductible Policy limit Coinsurance |
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