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Risks 2014, 2(2), 226-248; doi:10.3390/risks2020226
Article

Demand of Insurance under the Cost-of-Capital Premium Calculation Principle

1
 and
2,3,*
1 Department of Business Administration, University of Hamburg, 20146 Hamburg, Germany 2 RiskLab, Department of Mathematics, ETH Zurich, 8092 Zurich, Switzerland 3 Swiss Finance Institute SFI Professor, 8006 Zurich, Switzerland
* Author to whom correspondence should be addressed.
Received: 11 March 2014 / Revised: 28 May 2014 / Accepted: 4 June 2014 / Published: 17 June 2014
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Abstract

We study the optimal insurance design problem. This is a risk sharing problem between an insured and an insurer. The main novelty in this paper is that we study this optimization problem under a risk-adjusted premium calculation principle for the insurance cover. This risk-adjusted premium calculation principle uses the cost-of-capital approach as it is suggested (and used) by the regulator and the insurance industry.
Keywords: demand of insurance; optimal insurance design; risk-adjusted premium; cost-of-capital loading; deductible and risk sharing demand of insurance; optimal insurance design; risk-adjusted premium; cost-of-capital loading; deductible and risk sharing
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).
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Merz, M.; Wüthrich, M.V. Demand of Insurance under the Cost-of-Capital Premium Calculation Principle. Risks 2014, 2, 226-248.

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