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Insurance demand and welfare-maximizing risk capital—Some hints for the regulator in the case of exponential preferences and exponential claims

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  • Burren, Daniel

Abstract

We propose two models to analyze welfare-maximizing capital requirements for insurance companies considering that capital is costly and therefore affecting the premium. Within a continuous-time model, we derive insurance demand and welfare as a function of personal wealth, the insurance company’s wealth, and the claims process, and compare them to their counterparts in a static model. Besides discussing welfare-maximizing capital, we provide some new insights on insurance demand.

Suggested Citation

  • Burren, Daniel, 2013. "Insurance demand and welfare-maximizing risk capital—Some hints for the regulator in the case of exponential preferences and exponential claims," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 551-568.
  • Handle: RePEc:eee:insuma:v:53:y:2013:i:3:p:551-568
    DOI: 10.1016/j.insmatheco.2013.08.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Welfare-maximizing risk capital; Insurance demand; Risk theory; Optimal stochastic control;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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