Optimal cross hedging for insurance derivatives

Details Optimal cross hedging for insurance derivatives Optimal cross hedging for insurance derivatives

2007-05-25

arxiv.org/abs/0705.3760v1

Economy

Quantitative Finance

Pricing of Securities

27 pages

Scientific paper

We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal strategies for exponential utility from terminal wealth, determine the indifference prices of the derivatives, and interpret them in terms of diversification pressure. Moreover we check the optimal investment strategies for standard admissibility criteria. Finally we compare the static risk connected with an insurance derivative to the reduced risk due to a dynamic investment into the correlated asset. We show that dynamic hedging reduces the risk aversion in terms of entropic risk measures by a factor related to the correlation.

Affiliated with

Also associated with

No associations

Rating

Optimal cross hedging for insurance derivatives does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Optimal cross hedging for insurance derivatives, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Optimal cross hedging for insurance derivatives will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-680127