Open Access
2015 The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility
Liurui Deng
J. Appl. Math. 2015: 1-18 (2015). DOI: 10.1155/2015/186061

Abstract

Based on Bernard et al.’s research, we focus on the Pareto optimal insurance design with the insured’s Rank-Dependent Expected Utility (RDEU). Compared with their previous work, our novelties are the more general fixed cost function of the insurer and the discussion of adverse selection and moral hazard. In particular, Bernard et al. only consider the case in which the fixed cost function of handling an indemnity is the linear function. However, the fixed cost function is not just linear functions in real insurance market. So, we explore the more general fixed cost function including both the linear and nonlinear functions. On the other hand, we consider adverse selection and moral hazard which are involved by Bernard et al. Leading adverse selection and moral hazard into our research makes our results more practical and meaningful. Moreover, we provide an insight into the sensitivity of an optimal solution for the insured’s initial wealth and the parameters related to the fixed cost function of handling an indemnity. We further compare the two different utility functions of the insured in terms of influence of optimal policy analysis.

Citation

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Liurui Deng. "The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility." J. Appl. Math. 2015 1 - 18, 2015. https://doi.org/10.1155/2015/186061

Information

Published: 2015
First available in Project Euclid: 28 January 2016

zbMATH: 07132042
MathSciNet: MR3442629
Digital Object Identifier: 10.1155/2015/186061

Rights: Copyright © 2015 Hindawi

Vol.2015 • 2015
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