A0694
Title: The role of dependences and the moral hazard constraint in optimal reinsurance
Authors: Alexandra Moura - ISEG Lisbon School of Economics and Management & CEMAPRE - REM (Portugal) [presenting]
Abstract: The optimal reinsurance problem for several dependent risks is analyzed from the perspective of the direct insurer. The goal is to identify the optimal treaty that maximizes expected utility, assuming independent negotiation of reinsurance for each risk and employing different premium calculation principles for reinsurance. The dependence structure of the risks is general, and the reinsurance premium principles are moment-based. The problem is examined with and without constraints, such as the Lipschitz constraint, which is commonly imposed to prevent moral hazard. Based on the optimality conditions discussed in a prior study, the impact of the Lipschitz constraint on the optimal reinsurance treaty is analyzed. Numerical methods can obtain the optimal treaties for general dependent risks, with or without constraints. Numerical examples are provided, and comparisons of the optimal solutions are conducted.
