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Fractional insurance: strategies to deal with huge potential losses

Published online by Cambridge University Press:  01 April 2000

PETER FISHBURN  and
LARRY SHEPP
PETER FISHBURN
Affiliation:
AT&T Labs - Research, Florham Park, NJ 07932 USAfish@research.att.com
LARRY SHEPP
Affiliation:
Department of Statistics, Rutgers University, Piscataway, NJ 08854 USAshepp@stat.rutgers.edu
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Abstract

This paper describes and compares different optimization criteria for choosing fractional insurance coverage for risky ventures that may incur large losses and have high insurance rates due to substantial chances of failure. Four criteria are included: minimax loss, minimum expected loss, minimum expected loss with a limit on maximum loss, and maximum expected utility. The discussion is illustrated by satellite missions that can incur losses in excess of $100 million.

Type
Technical article
Information
Risk, Decision and Policy , Volume 5 , Issue 1 , April 2000 , pp. 1 - 17
Copyright
© Cambridge University Press, 2000

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