Abstract
This study designs an optimal insurance policy form endogenously, assuming the objective of the insured is to maximize expected final wealth under the Value-at-Risk (VaR) constraint. The optimal insurance policy can be replicated using three options, including a long call option with a small strike price, a short call option with a large strike price, and a short cash-or-nothing call option. Additionally, this study also calculates the optimal insurance levels for these models when we restrict the indemnity to be one of three common forms: a deductible policy, an upper-limit policy, or a policy with proportional coinsurance.
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Wang, CP., Shyu, D. & Huang, HH. Optimal Insurance Design Under a Value-at-Risk Framework. Geneva Risk Insur Rev 30, 161–179 (2005). https://doi.org/10.1007/s10713-005-4677-0
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DOI: https://doi.org/10.1007/s10713-005-4677-0