The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility
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 ha...
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| Format: | Article |
| Language: | English |
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Wiley
2015-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2015/186061 |
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| author | Liurui Deng |
| author_facet | Liurui Deng |
| author_sort | Liurui Deng |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-5344011bfb2a4db3be337b0b01593c45 |
| institution | Kabale University |
| issn | 1110-757X 1687-0042 |
| language | English |
| publishDate | 2015-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Applied Mathematics |
| spelling | doaj-art-5344011bfb2a4db3be337b0b01593c452025-02-03T06:13:59ZengWileyJournal of Applied Mathematics1110-757X1687-00422015-01-01201510.1155/2015/186061186061The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected UtilityLiurui Deng0College of Economics and Management, Hunan Normal University, Changsha 410081, ChinaBased 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.http://dx.doi.org/10.1155/2015/186061 |
| spellingShingle | Liurui Deng The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility Journal of Applied Mathematics |
| title | The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility |
| title_full | The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility |
| title_fullStr | The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility |
| title_full_unstemmed | The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility |
| title_short | The Optimal Insurance Policy for the General Fixed Cost of Handling an Indemnity under Rank-Dependent Expected Utility |
| title_sort | optimal insurance policy for the general fixed cost of handling an indemnity under rank dependent expected utility |
| url | http://dx.doi.org/10.1155/2015/186061 |
| work_keys_str_mv | AT liuruideng theoptimalinsurancepolicyforthegeneralfixedcostofhandlinganindemnityunderrankdependentexpectedutility AT liuruideng optimalinsurancepolicyforthegeneralfixedcostofhandlinganindemnityunderrankdependentexpectedutility |