IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v17y2016icp280-284.html
   My bibliography  Save this article

Some new results about optimal insurance demand under uncertainty

Author

Listed:
  • Huang, Baoan
  • Miao, Jianjun
  • Zhang, Zongliang
  • Zhao, Dianbo

Abstract

The aim of this paper is to investigate the optimal insurance demand of a risk-averse agent who is faced with background uncertainty. The preferences of the agent are represented by two-moment, mean-standard deviation utility functions. By the comparative statics, we find that under the assumption of decreasing absolute risk aversion (DARA), the changes of background uncertainty have effects on optimal insurance demand.

Suggested Citation

  • Huang, Baoan & Miao, Jianjun & Zhang, Zongliang & Zhao, Dianbo, 2016. "Some new results about optimal insurance demand under uncertainty," Finance Research Letters, Elsevier, vol. 17(C), pages 280-284.
    • Handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:280-284
    DOI: 10.1016/j.frl.2016.03.026
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612316300381
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2016.03.026?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Georges Dionne & Christian Gollier, 1992. "Comparative Statics Under Multiple Sources of Risk with Applications to Insurance Demand," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 17(1), pages 21-33, June.
    2. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1995. "Indirect hedging of exchange rate risk," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 667-678, October.
    3. Briys, Eric & Crouhy, Michel & Schlesinger, Harris, 1993. "Optimal hedging in a futures market with background noise and basis risk," European Economic Review, Elsevier, vol. 37(5), pages 949-960, June.
    4. Eichner, Thomas & Wagener, Andreas, 2014. "Insurance demand and first-order risk increases under (μ,σ)-preferences revisited," Finance Research Letters, Elsevier, vol. 11(4), pages 326-331.
    5. Hadar, Josef & Seo, Tae Kun, 1990. "The Effects of Shifts in a Return Distribution on Optimal Portfolios," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 721-736, August.
    6. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    7. Wagener, Andreas, 2003. "Comparative statics under uncertainty: The case of mean-variance preferences," European Journal of Operational Research, Elsevier, vol. 151(1), pages 224-232, November.
    8. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, John Wiley & Sons, vol. 66(1), pages 178-185, July.
    9. Bonilla, Claudio A. & Ruiz, Jose L., 2014. "Insurance demand and first order risk increases under (μ,σ)-preferences," Finance Research Letters, Elsevier, vol. 11(3), pages 219-223.
    10. Fanny Demers & Michel Demers, 1991. "Increases in Risk and the Optimal Deductible," Carleton Economic Papers 91-03, Carleton University, Department of Economics, revised Dec 1991.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hemrit, Wael & Nakhli, Mohamed Sahbi, 2021. "Insurance and geopolitical risk: Fresh empirical evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 320-334.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eichner, Thomas & Wagener, Andreas, 2014. "Insurance demand and first-order risk increases under (μ,σ)-preferences revisited," Finance Research Letters, Elsevier, vol. 11(4), pages 326-331.
    2. Xu Guo & Andreas Wagener & Wing-Keung Wong & Lixing Zhu, 2018. "The two-moment decision model with additive risks," Risk Management, Palgrave Macmillan, vol. 20(1), pages 77-94, February.
    3. Udo Broll & Jack E. Wahl, 2004. "Optimal hedge ratio and elasticity of risk aversion," Economics Bulletin, AccessEcon, vol. 6(5), pages 1-7.
    4. Vergara, Marcos & Bonilla, Claudio A., 2021. "Precautionary saving in mean-variance models and different sources of risk," Economic Modelling, Elsevier, vol. 98(C), pages 280-289.
    5. repec:ebl:ecbull:v:6:y:2004:i:5:p:1-7 is not listed on IDEAS
    6. Broll, Udo & Mukherjee, Soumyatanu, 2017. "International trade and firms' attitude towards risk," Economic Modelling, Elsevier, vol. 64(C), pages 69-73.
    7. Röthig, Andreas, 2008. "The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35698, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    8. Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1329-1344.
    9. repec:got:cegedp:28 is not listed on IDEAS
    10. Hennessy, David A., 1998. "Industry equilibrium under price distribution and cost shifts," Journal of Economics and Business, Elsevier, vol. 50(6), pages 509-523, November.
    11. Gollier, Christian & Schlesinger, Harris, 2002. "Changes in risk and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 747-760, May.
    12. Adam-Muller, Axel F. A., 2000. "Hedging price risk when real wealth matters," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 549-560, August.
    13. Broll, Udo & Hansen, Sabine, 2004. "Labour Demand and Exchange Rate Volatility," University of Göttingen Working Papers in Economics 28, University of Goettingen, Department of Economics.
    14. Eichner, Thomas, 2011. "Portfolio selection and duality under mean variance preferences," Insurance: Mathematics and Economics, Elsevier, vol. 48(1), pages 146-152, January.
    15. Fatma Lajeri-Chaherli, 2016. "On The Concavity And Quasiconcavity Properties Of ( Σ , Μ ) Utility Functions," Bulletin of Economic Research, Wiley Blackwell, vol. 68(3), pages 287-296, April.
    16. Wagener, Andreas, 2002. "Prudence and risk vulnerability in two-moment decision models," Economics Letters, Elsevier, vol. 74(2), pages 229-235, January.
    17. Thomas Eichner & Andreas Wagener, 2004. "The Welfare State in a Changing Environment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(3), pages 313-331, May.
    18. Lien, Donald & Wong, Kit Pong, 2004. "Optimal bidding and hedging in international markets," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 785-798, September.
    19. Broll, Udo & Wahl, Jack E., 1995. "Missing risk sharing markets and the benefits of cross hedging in developing countries," Discussion Papers, Series II 284, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    20. Takashi Nishiwaki, 2020. "Does Ambiguity Generate Demand for Options?," Working Papers 2011, Waseda University, Faculty of Political Science and Economics.
    21. Broll, Udo & Guo, Xu & Welzel, Peter & Wong, Wing-Keung, 2015. "The banking firm and risk taking in a two-moment decision model," Economic Modelling, Elsevier, vol. 50(C), pages 275-280.
    22. Broll, Udo & Wong, Kit-Pong, 1997. "Hedging of exchange rate risk and regression dependence," Discussion Papers, Series II 355, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".

    More about this item

    Keywords

    Background uncertainty; Decreasing absolute risk aversion; (μ; σ) preferences; Optimal insurance demand;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:280-284. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.