Demand for non-life insurance under habit formation
This paper studies the optimal non-life insurance for an individual exhibiting internal habit formation in a life-cycle model. We show that the optimal indemnity is deductible under the expected premium principle. Under the additional assumption of exponential utility functions, we obtain the optima...
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sg-ntu-dr.10356-1599372023-05-19T07:31:16Z Demand for non-life insurance under habit formation Li, Wenyuan Tan, Ken Seng Wei, Pengyu Nanyang Business School Insurance Risk and Finance Centre Business::Finance Habit Formation Optimal Insurance This paper studies the optimal non-life insurance for an individual exhibiting internal habit formation in a life-cycle model. We show that the optimal indemnity is deductible under the expected premium principle. Under the additional assumption of exponential utility functions, we obtain the optimal strategies explicitly and find that habit formation reduces insurance coverage. Our model offers a potential explanation for global underinsurance phenomenon. Some numerical examples and sensitivity analysis are presented to highlight our theoretical results. Published version 2022-07-06T02:23:31Z 2022-07-06T02:23:31Z 2021 Journal Article Li, W., Tan, K. S. & Wei, P. (2021). Demand for non-life insurance under habit formation. Insurance: Mathematics and Economics, 101, 38-54. https://dx.doi.org/10.1016/j.insmatheco.2020.06.012 0167-6687 https://hdl.handle.net/10356/159937 10.1016/j.insmatheco.2020.06.012 2-s2.0-85087717692 101 38 54 en Insurance: Mathematics and Economics Crown Copyright © 2020 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). application/pdf |
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Business::Finance Habit Formation Optimal Insurance Li, Wenyuan Tan, Ken Seng Wei, Pengyu Demand for non-life insurance under habit formation |
| description |
This paper studies the optimal non-life insurance for an individual exhibiting internal habit formation in a life-cycle model. We show that the optimal indemnity is deductible under the expected premium principle. Under the additional assumption of exponential utility functions, we obtain the optimal strategies explicitly and find that habit formation reduces insurance coverage. Our model offers a potential explanation for global underinsurance phenomenon. Some numerical examples and sensitivity analysis are presented to highlight our theoretical results. |
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Nanyang Business School |
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Nanyang Business School Li, Wenyuan Tan, Ken Seng Wei, Pengyu |
| format |
Article |
| author |
Li, Wenyuan Tan, Ken Seng Wei, Pengyu |
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Li, Wenyuan |
| title |
Demand for non-life insurance under habit formation |
| title_short |
Demand for non-life insurance under habit formation |
| title_full |
Demand for non-life insurance under habit formation |
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Demand for non-life insurance under habit formation |
| title_full_unstemmed |
Demand for non-life insurance under habit formation |
| title_sort |
demand for non-life insurance under habit formation |
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2022 |
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https://hdl.handle.net/10356/159937 |
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