A VaR-based optimal reinsurance model: the perspective of both the insurer and the reinsurer

Abstract

In recent decades, reinsurance has often been addressed in economic research. The main objective was to determine the optimal form and level of reinsurance, under either the perspective of the cedant or of the reinsurer. A major role was played by Cai and Tan (2007), who determined the level of retention, in a stop-loss reinsurance, that minimizes the Value at Risk (VaR) of the total exposure of the cedant: in this sense, it is optimal. The aim of this thesis is to further investigate the aforementioned results. After an introductive analysis of the VaR-based optimal reinsurance model, the same is evaluated under the perspective of the reinsurer: the purpose is to determine whether and how the optimal solution for the cedant diverges from the one of the reinsurer. In conclusion, a possible unique solution is explored on the basis of the works by Cai et al (2015) and Lo (2017).