Approximate Solutions for Indifference Pricing under General Utility Functions

Open Access
Authors
Publication date 2007
Number of pages 27
Publisher Amsterdam: Faculteit Economie en Bedrijfskunde
Organisations
  • Faculty of Economics and Business (FEB) - Amsterdam School of Economics Research Institute (ASE-RI)
Abstract With the aid of Taylor-based approximations, this paper presents results for pricing insurance contracts by using indifference pricing under general utility functions. We discuss the connection between the resulting "theoretical" indifference prices and the pricing rule-of-thumb that practitioners use: Best Estimate plus a "Market Value Margin". Furthermore, we compare our approximations with known analytical results for exponential and power utility.
Document type Working paper
Language English
Published at http://www1.feb.uva.nl/pp/bin/695fulltext.pdf
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695fulltext.pdf (Submitted manuscript)
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