IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v16y2022i2p187-218n1.html
   My bibliography  Save this article

Optimal Reciprocal Reinsurance under VaR or TVaR Constraint

Author

Listed:
  • Huang Hung-Hsi

    (Professor, Department of Banking and Finance, National Chiayi University, No. 580, Sinmin Rd., Chiayi City, 60054, Taiwan)

  • Wang Ching-Ping

    (Professor, Department of Public Finance and Taxation, National Kaohsiung University of Science and Technology, No. 415, Chien-Kung Rd., Sanmin District, Kaohsiung City, 80778, Taiwan)

Abstract

Most existing researches on optimal reinsurance contract are based on an insurer’s viewpoint. However, the optimal reinsurance contract for an insurer is not necessarily to be optimal for a reinsurer. Hence, this study aims to develop the optimal reciprocal reinsurance which satisfies the benefits of both the insurer and reinsurer. Additionally, due to legislative restriction or risk management requirement, the wealth of insurer and reinsurer are frequently imposed upon a VaR (Value-at-Risk) or TVaR (Tail Value-at-Risk) constraint. Therefore, this study develops an optimal reciprocal reinsurance contract which maximizes the common benefits (evaluated by weighted addition of expected utilities) of the insurer and reinsurer subject to their VaR or TVaR constraints. Furthermore, for avoiding moral hazard problem, the developed contract is additionally restricted to a regular form or incentive compatibility (both indemnity schedule and retained loss schedule are continuously nondecreasing).

Suggested Citation

  • Huang Hung-Hsi & Wang Ching-Ping, 2022. "Optimal Reciprocal Reinsurance under VaR or TVaR Constraint," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 16(2), pages 187-218, July.
    • Handle: RePEc:bpj:apjrin:v:16:y:2022:i:2:p:187-218:n:1
    DOI: 10.1515/apjri-2021-0023
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/apjri-2021-0023
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/apjri-2021-0023?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.

    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:bpj:apjrin:v:16:y:2022:i:2:p:187-218:n:1. 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: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    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.