2007/11/07 by Kei Fukuda, Fukuda, Kei, Akihiko Inoue +3
Decision Sciences · Economics, Econometrics and Finance · Mathematics · Social Sciences · #Actuarial science #Econometrics #Economics #Expected utility hypothesis #Exponential function #FOS: Economics and business #FOS: Mathematics #Finance #Function (biology) #Insurance and Financial Risk Management #Insurance, Mortality, Demography, Risk Management #Mathematical economics #Mathematics #Order (exchange) #Pricing of Securities (q-fin.PR) #Primary 62P05 #Probability (math.PR) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Risk premium #Secondary 91B28 #Simple (philosophy) #math.PR #msc:62P05 #msc:91B28 #q-fin.PR #q-fin.RM
paper · pdf · doi:10.48550/arxiv.0711.1143
20 pages, 3 figures
openalex publication_date 2007/11/07 · arxiv created 2007/11/22 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of the optimal intertemporal risk allocation by a first order condition. Applying this result to the exponential utility function, we obtain an essentially new type of premium calculation method for a popular type of multi-period insurance contract. This method is simple and can be easily implemented numerically. We see that the results of numerical calculations are well coincident with the risk loading level determined by traditional practices. The results also suggest a possible implied utility approach to insurance pricing.