Autori
Kast, Robert
Luciano, Elisa

Titolo
A value at risk approach to background risk
Periodico
International Center for Economics Research, Torino. ICER - Working papers series
Anno: 1999 - Fascicolo: 7 - Pagina iniziale: 1 - Pagina finale: 27

This paper addresses the problem of the effects of the introduction of an uninsurable, background risk on the demand for insurance (proportional and with deductible). We study both the case of background risk uncorrelated with the insurable one and the opposite case. In order to perform our study, we exploit the new risk measure known as value at risk and introduce insurance on worst-case scenarios. By so doing, we are able to get results which do not depend on the risk attitudes of the insured, such as risk aversion and prudence. The results we obtain depend on the parameters of both risks and on the magnitude of loading charged by the insurance company. We demonstrate that, if loadings are not too high, the demand for insurance increases with positively correlated backgrounds risk; it falls, possibly to zero, with negatively correlated background risk.



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