Abstract
This study develops an optimal insurance contract endogenously under a value-at-risk (VaR) constraint. Although Wang et al. [2005] had examined this problem, their assumption implied that the insured is risk neutral. Consequently, this study extends Wang et al. [2005] and further considers a more realistic situation where the insured is risk averse. The study derives the optimal insurance contract as a single deductible insurance when the VaR constraint is redundant or as a double deductible insurance when the VaR constraint is binding. Finally, this study discusses the optimal coverage level from common forms of insurances, including deductible insurance, upper-limit insurance, and proportional coinsurance.
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Huang, HH. Optimal insurance contract under a value-at-risk constraint. Geneva Risk Insur Rev 31, 91–110 (2006). https://doi.org/10.1007/s10713-006-0557-5
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DOI: https://doi.org/10.1007/s10713-006-0557-5