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Insurer's Portfolios of Risks: Approximating Infinite Horizon Stochastic Dynamic Optimization Problems

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  • L.A. Korf

Abstract

Many optimal portfolio problems, due to uncertainties with rare occurrences and the need to bypass so-called "end of the world effects" require considering an infinite time horizon. Among these in particular are insurer's portfolios which may include catastrophic risks such as earthquakes, floods, etc. This paper sets up an approximation framework, and obtains bounds for a class of infinite horizon stochastic dynamic optimization problems with discounted cost criterion, in the framework of stochastic programming. The resulting framework is applied to an insurer's portfolio of risk contracts.

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  • L.A. Korf, 1998. "Insurer's Portfolios of Risks: Approximating Infinite Horizon Stochastic Dynamic Optimization Problems," Working Papers ir98061, International Institute for Applied Systems Analysis.
    • Handle: RePEc:wop:iasawp:ir98061
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    References listed on IDEAS

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    1. T.Y. Ermolieva, 1997. "The Design of Optimal Insurance Decisions in the Presence of Catastrophic Risks," Working Papers ir97068, International Institute for Applied Systems Analysis.
    2. T.Y. Ermolieva & Y.M. Ermoliev & V.I. Norkin, 1997. "Spatial Stochastic Model for Optimization Capacity of Insurance Networks Under Dependent Catastrophic Risks: Numerical Experiments," Working Papers ir97028, International Institute for Applied Systems Analysis.
    3. Flam, Sjur D & Wets, Roger J-B, 1987. "Existence Results and Finite Horizon Approximates for Infinite Horizon Optimization Problems," Econometrica, Econometric Society, vol. 55(5), pages 1187-1209, September.
    4. GRINOLD, Richard C., 1977. "Finite horizon approximations of infinite horizon linear programs," LIDAM Reprints CORE 294, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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