TITLE:
Optimal Insurance with Background Risk and Belief Heterogeneity
AUTHORS:
Zixuan Xu
KEYWORDS:
Optimal Insurance, Background Risk, Belief Heterogeneity, Generalized Wang’s Premium Principle, No Insurance, Full Insurance
JOURNAL NAME:
Open Journal of Business and Management,
Vol.10 No.1,
January
5,
2022
ABSTRACT: In this paper, we study an optimal insurance model by maximizing the
insurer’s expected utility in the presence of background risk and belief heterogeneity.
When the insurance premium is calculated by the generalized Wang’s premium
principle, we prove the existence and uniqueness of the optimal solution and
give a necessary and sufficient condition for the optimal insurance policy.
With the help of these results, we consider the optimality of no insurance and
full insurance and give more concise conditions.