Department seminar by Tim Boonen, University of AmsterdamExport this event to calendar

Friday, February 22, 2019 — 10:30 AM EST

Equilibrium recoveries in insurance markets with limited liability


In this talk, I will talk about optimal insurance in partial equilibrium in case the insurer is protected by limited liability, and the multivariate insured risk is exchangeable. I focus on the optimal allocation of remaining assets in default, and show existence of an equilibrium in the market. In such an equilibrium, perfect pooling of the risk in the market occurs, but a protection fund is needed to charge levies to policyholders with low realized losses. If policyholders cannot be forced ex post to pay a levy, the constrained equal loss rule is used in equilibrium. This rule gained particular interest in the literature on bankruptcy problems. Moreover, in absence of a regulator, the insurer will always invest all its assets in the risky technology. The welfare losses if other recovery rules are used in case of default are illustrated; a different recovery rule can substantially effect the profit of the insurer. This talk will be based on a working paper on SSRN.  

Location 
M3 - Mathematics 3
Room: 3127
200 University Avenue West

Waterloo, ON N2L 3G1
Canada

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