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Document Details : Title: Ambiguity Aversion Subtitle: A New Perspective on Insurance Pricing Author(s): ZHAO, Lin , ZHU, Wei Journal: ASTIN Bulletin Volume: 41 Issue: 1 Date: 2011 Pages: 157-189 DOI: 10.2143/AST.41.1.2084390 Abstract : This paper intends to develop a feasible framework which incorporates ambiguity aversion into the pricing of insurance products and investigate the implications of ambiguity aversion on the pricing by comparing it with risk aversion. As applications of the framework, we present the closed-form pricing formulae for some insurance products appearing in life insurance and property insurance. Our model confirms that the effects of ambiguity aversion on the pricing of insurance do differ from those of risk aversion. Implications of our model are consistent with some empirical evidences documented in the literature. Our results suggest that taking advantage of natural hedge mechanism can help us control the effects of model uncertainty. |
