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Risk-insurance parity

Author

Listed:
  • Benjamin C^ot'e
  • Ruodu Wang
  • Qinyu Wu

Abstract

Risk aversion and insurance are two prominent and interconnected concepts in economics and finance. To explore their fundamental connection, we introduce risk-insurance parity, which associates various classes of insurance contracts with different notions of risk aversion. We show that the classic notions -- both weak and strong -- of risk aversion can be characterized by propensity to different classes of insurance contracts, generalizing recent results on propensity to full, proportional, and deductible-limit contracts in the literature. We obtain full characterizations of the classes of insurance indemnity functions that correspond to weak and strong risk aversion. Risk-insurance parity allows us to define two new notions of risk aversion, between weak and strong, characterized by insurance propensity to deductible-only and limit-only contracts respectively.

Suggested Citation

  • Benjamin C^ot'e & Ruodu Wang & Qinyu Wu, 2025. "Risk-insurance parity," Papers 2512.09208, arXiv.org.
    • Handle: RePEc:arx:papers:2512.09208
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    References listed on IDEAS

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