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Pareto-optimal insurance under robust distortion risk measures

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  • Boonen, Tim J.
  • Jiang, Wenjun

Abstract

This paper delves into the optimal insurance contracting problem from the perspective of Pareto optimality. The potential policyholder (PH) and finitely many insurers all apply distortion risk measures for insurance negotiation and are assumed to be ambiguous about the underlying loss distribution. Ambiguity is modeled via sets of probability measures for each agent, and those sets are generated through Wasserstein balls around possibly different benchmark distributions. We derive the analytical forms of the optimal indemnity functions and the worst-case survival functions from all the parties’ perspectives. We illustrate more implications through numerical examples.

Suggested Citation

  • Boonen, Tim J. & Jiang, Wenjun, 2025. "Pareto-optimal insurance under robust distortion risk measures," European Journal of Operational Research, Elsevier, vol. 324(2), pages 690-705.
    • Handle: RePEc:eee:ejores:v:324:y:2025:i:2:p:690-705
    DOI: 10.1016/j.ejor.2025.03.020
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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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