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UNIVERSALLY MARKETABLE INSURANCE UNDER MULTIVARIATE MIXTURES

Published online by Cambridge University Press:  24 November 2020

Ambrose Lo ,
Qihe Tang  and
Zhaofeng Tang
Ambrose Lo
Affiliation:
Department of Statistics and Actuarial Science, University of Iowa, Iowa City, IA52242, USA, E-Mail: [email protected]
Qihe Tang
Affiliation:
School of Risk and Actuarial Studies, UNSW Sydney, Sydney, NSW2052, Australia Department of Statistics and Actuarial Science, University of Iowa, Iowa City, IA52242, USA, E-Mail: [email protected]; [email protected]
Zhaofeng Tang*
Affiliation:
Model Validation Group, S&P Global Ratings, One Prudential Plaza Suite 3600, 130 East Randolph Street, Chicago, IL60601, USA, E-Mail: [email protected]
*
E-Mail: [email protected]
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Abstract

The study of desirable structural properties that define a marketable insurance contract has been a recurring theme in insurance economic theory and practice. In this article, we develop probabilistic and structural characterizations for insurance indemnities that are universally marketable in the sense that they appeal to all policyholders whose risk preferences respect the convex order. We begin with the univariate case where a given policyholder faces a single risk, then extend our results to the case where multiple risks possessing a certain dependence structure coexist. The non-decreasing and 1-Lipschitz condition, in various forms, is shown to be intimately related to the notion of universal marketability. As the highlight of this article, we propose a multivariate mixture model which not only accommodates a host of dependence structures commonly encountered in practice but is also flexible enough to house a rich class of marketable indemnity schedules.

Keywords

1-LipschitzdependenceindemnitymarketabilitymixturesC02G22
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 1 , January 2021 , pp. 221 - 243
Copyright
© 2020 by Astin Bulletin. All rights reserved

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