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Threshold control of mutual insurance with limited commitment |
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| Authors: | Jia Yan John J Liu Kevin X Li |
| Institution: | aSchool of Economic Sciences, Washington State University, Hulbert 101, Pullman, WA 99164, United States;bFaculty of Business, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China |
| Abstract: | We study the optimal premium policy of mutual insurance when the charged premium cannot be higher than a preset rate. We provide a complete solution to the problem and use numerical simulations to illustrate how the optimal premium policy responds to changes of outside factors. The results are useful for mutual insurance firms to design premium policies and can be used to test the behavior of these firms in empirical studies. |
| Keywords: | Stochastic programming Mutual insurance Threshold control Limited commitment Diffusion process |
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