Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077369 | Insurance: Mathematics and Economics | 2008 | 6 Pages |
Abstract
In this paper, we discuss how a risk-averse individual under an intertemporal equilibrium chooses his/her optimal insurance strategy to maximize his/her expected utility of terminal wealth. It is shown that the individual's optimal insurance strategy actually is equivalent to buying a put option, which is written on his/her holding asset with a proper strike price. Since the cost of avoiding risk can be seen as a risk measure, the put option premium can be considered as a reasonable risk measure. Jarrow [Jarrow, R., 2002. Put option premiums and coherent risk measures. Math. Finance 12, 135-142] drew this conclusion with an axiomatic approach, and we verify it by solving the individual's optimal insurance problem.
Keywords
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Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Chunyang Zhou, Chongfeng Wu, Shengping Zhang, Xuejun Huang,