{"id":4112,"date":"2016-11-21T09:25:27","date_gmt":"2016-11-21T09:25:27","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=publication&#038;p=4112"},"modified":"2024-09-18T17:25:23","modified_gmt":"2024-09-18T16:25:23","slug":"ambiguity-and-insurance-robust-capital-requirements-and-premiums-working-paper-97","status":"publish","type":"publication","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/ambiguity-and-insurance-robust-capital-requirements-and-premiums-working-paper-97\/","title":{"rendered":"Ambiguity and insurance: capital requirements and premiums"},"content":{"rendered":"<!DOCTYPE html PUBLIC \"-\/\/W3C\/\/DTD HTML 4.0 Transitional\/\/EN\" \"http:\/\/www.w3.org\/TR\/REC-html40\/loose.dtd\">\n<?xml encoding=\"UTF-8\"><p>Many insurance contracts are contingent on events such as hurricanes, terrorist attacks or political upheavals, whose probabilities are ambiguous. This paper offers a theory to underpin the large body of empirical evidence showing that higher premiums are charged under ambiguity. We model a (re)insurer who maximises profit subject to a survival constraint that is sensitive to the range of estimates of the probability of ruin, as well as the insurer&rsquo;s attitude towards this ambiguity. We characterise when one book of insurance is more ambiguous than another and general circumstances in which a more ambiguous book requires at least as large a capital holding. We subsequently derive several explicit formulae for the price of insurance contracts under ambiguity, each of which identifies the extra ambiguity load.<\/p>\n\n","protected":false},"excerpt":{"rendered":"<!DOCTYPE html PUBLIC \"-\/\/W3C\/\/DTD HTML 4.0 Transitional\/\/EN\" \"http:\/\/www.w3.org\/TR\/REC-html40\/loose.dtd\">\n<?xml encoding=\"UTF-8\"><p>Many insurance contracts are contingent on events such as hurricanes, terrorist attacks or political upheavals, whose probabilities are ambiguous. This&hellip;<\/p>\n\n","protected":false},"author":43,"featured_media":0,"template":"","tags":[849,65],"publication-type":[435],"topic_area":[4692,4690],"class_list":["post-4112","publication","type-publication","status-publish","hentry","tag-ambiguity-aversion","tag-insurance","publication-type-working-papers","topic_area-adaptation-and-resilience","topic_area-climate-science-and-impacts"],"acf":{"downloads":{"ref_value":"field_52f16cc1a80f2","value":["https:\/\/www.lse.ac.uk\/granthaminstitute\/wp-content\/uploads\/2012\/11\/Working-Paper-97-Dietz-and-Walker.pdf"],"type":"download","post_type":""},"profile_link":{"ref_value":"field_52f164b5189e9","value":["simon-dietz","oliver-walker"],"type":"relationship","post_type":"profile"},"spotlight":{"ref_value":"field_52f80896506d3","value":"","type":false,"post_type":""},"exclude_from_sync":{"ref_value":"field_560538b0e7350","value":"0","type":false,"post_type":""},"rss_newsletter":{"ref_value":"field_54f5c2c1544d8","value":"","type":false,"post_type":""},"show_translations_widget":{"ref_value":"field_6203d588c41e8","value":"0","type":false,"post_type":""}},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Ambiguity and insurance: capital requirements and premiums - Grantham Research Institute on climate change and the environment<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/ambiguity-and-insurance-robust-capital-requirements-and-premiums-working-paper-97\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ambiguity and insurance: capital requirements and premiums - Grantham Research Institute on climate change and the environment\" \/>\n<meta property=\"og:description\" content=\"Many insurance contracts are contingent on events such as hurricanes, terrorist attacks or political upheavals, whose probabilities are ambiguous. 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