Are generalized call-spreads efficient ?
Carlier, Guillaume; Dana, Rose-Anne (2007), Are generalized call-spreads efficient ?, Journal of Mathematical Economics, 43, 5, p. 581-596. http://dx.doi.org/10.1016/j.jmateco.2006.07.008
TypeArticle accepté pour publication ou publié
Journal nameJournal of Mathematical Economics
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Abstract (EN)In order to explain coexistence of a deductible for low values of the loss and an upper limit for high values of the loss in insurance contracts, we consider the exchange of risk between two rank dependent expected utility maximizers. It is shown that if the insurer (insured) takes more into account the lowest outcomes – hence maximal losses – than the insured (insurer), then the optimal contract has an upper limit (includes a deductible for high values of the loss). If furthermore, the insured (insurer) neglects the highest outcomes while the insurer (insured) does not, the optimal contract includes a deductible (full insurance) for low values of the loss.
Subjects / Keywordscontract; deductible; upper-limit; call-spread; efficiency
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