We investigate the influence of the dependence between random losses on the shortfall and on the diversification benefit that arises from merging these losses. We prove that increasing the dependence between losses, expressed in terms of correlation order, has an increasing effect on the...

Dhaene, Denuit, Goovaerts, Kaas and Vyncke [Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002a. The concept of comonotonicity in actuarial science and finance: theory. Insurance Math. Econom. 31 (1), 3-33; Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002b. The...

Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant (state-independent) setting corresponds to the optimum for an...

Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which income is received. Optimal payoffs have their lowest...

We consider the problem of determining the minimal requirement one must establish in order to meet a series of future random payments. It is shown in a very general setting that this problem can be recast as a chance constrained model and how the technique of Sample Average Approximation can be...

Cox and Leland used techniques from the field of stochastic control theory to show that, in the particular case of a Brownian motion for the asset log-returns, risk-averse decision makers with a fixed investment horizon prefer path-independent pay-offs over path-dependent pay-offs. In this note...

Rogers and Shi (1995) have used the technique of conditional expectations to derive approximations for the distribution of a sum of lognormals. In this paper we extend their results to more general sums of random variables. In particular we study sums of functions of dependent random variables...

Brown et al. (2006) derive a Stein-type inequality for the multivariate Student’s t-distribution. We generalize their result to the family of (multivariate) generalized hyperbolic distributions and derive a lower bound for the variance of a function of a random variable.

type="main" xml:lang="en" <title type="main">Abstract</title> <p>In this article, insurance claims are priced using an indifference pricing principle. We first revisit the traditional economic framework and then extend it to incorporate a financial (sub)market as a tool to invest and to (partially) hedge. In this context, we...</p>