Hedging With Individual And Index-Based Contracts
We examine the optimal hedging strategy with an individual insurance policy, sold at an unfair price, and a fair contract based on an index, which is imperfectly correlated with the individual loss. The tradeoff between transaction costs and basis risk is first analyzed in the expected utility framework in order to highlight the role of the agent's attitude toward risk, and then in the linear mean-variance model to stress the importance of the degree of correlation between the individual loss and the index.
|Date of creation:||2003|
|Contact details of provider:|| Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202|
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, July.
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- Alarie, Y. & Eeckhoudt, L. & Dionne, G., 1990. "Increases in Risk and the Demand for Insurance," Cahiers de recherche 9021, Universite de Montreal, Departement de sciences economiques.
- Alarie, Y. & Eeckhoudt, L. & Dionne, G., 1990. "Increases In Risk And The Demand For Insurance," Cahiers de recherche 9021, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Darren L. Frechette, 2000. "The Demand for Hedging and the Value of Hedging Opportunities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 897-907.
- Louis Eeckhoudt & Olivier Mahul & John Moran, 2003. "Fixed-Reimbursement Insurance: Basic Properties and Comparative Statics," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(2), pages 207-218.
- EECKHOUDT, Louis & MAHUL, Olivier & MORAN, John, "undated". "Fixed-reimbursement insurance: basic properties and comparative statics," CORE Discussion Papers RP 1619, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Olivier Mahul, 1999. "Optimum Area Yield Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 75-82. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ags:aaea03:22007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.