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Optimal reinsurance under multiple attribute decision making

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  • Bulut Karageyik, BaÅŸak
  • Dickson, David C.M.

Abstract

We apply methods from multiple attribute decision making (MADM) to the problem of selecting an optimal reinsurance level. In particular, we apply the Technique for Order of Preference by Similarity to Ideal Solution method with Mahalanobis distance. We consider the classical risk model under a reinsurance arrangement – either excess of loss or proportional – and we consider scenarios that have the same finite time ruin probability. For each of these scenarios we calculate three quantities: released capital, expected profit and expected utility of resulting wealth. Using these inputs, we apply MADM to find optimal retention levels. We compare and contrast our findings with those when decisions are based on a single attribute.

Suggested Citation

  • Bulut Karageyik, BaÅŸak & Dickson, David C.M., 2016. "Optimal reinsurance under multiple attribute decision making," Annals of Actuarial Science, Cambridge University Press, vol. 10(1), pages 65-86, March.
    • Handle: RePEc:cup:anacsi:v:10:y:2016:i:01:p:65-86_00
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    Cited by:

    1. Başak Bulut Karageyik & Şule Şahin, 2017. "Determination of the Optimal Retention Level Based on Different Measures," JRFM, MDPI, vol. 10(1), pages 1-21, January.
    2. Başak Bulut Karageyik & Şule Şahin, 2016. "Optimal Retention Level for Infinite Time Horizons under MADM," Risks, MDPI, vol. 5(1), pages 1-24, December.
    3. Shirley Jie Xuan Wang & Kim Leng Poh, 2017. "Intelligent Decision Support in Proportional–Stop-Loss Reinsurance Using Multiple Attribute Decision-Making (MADM)," JRFM, MDPI, vol. 10(4), pages 1-17, November.

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