IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/30469.html
   My bibliography  Save this paper

Use of put options as insurance

Author

Listed:
  • Bell, Peter

Abstract

An important question in insurance is the amount of coverage to purchase. A standard microeconomic model for insurance shows that full insurance is optimal. I present a different model where the decision variable is the number of put options and show that full insurance is still optimal, but the number of put options required to achieve this is larger than the endowment of risky assets. The model I present is based on a binomial model for a financial market, where the put option represents insurance.

Suggested Citation

  • Bell, Peter, 2011. "Use of put options as insurance," MPRA Paper 30469, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:30469
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/30469/1/MPRA_paper_30469.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Insurance; put option; binomial model; risk averse; risk neutral;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:30469. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.