HEDGING WITH INDIVIDUAL AND INDEX-BASED CONTRACTS

We examine the optimal hedging strategy with an individual insurance policy, sold at an unfair price, and a fair contract based on an index, which is imperfectly correlated with the individual loss. The tradeoff between transaction costs and basis risk is first analyzed in the expected utility framework in order to highlight the role of the agent's attitude toward risk, and then in the linear mean-variance model to stress the importance of the degree of correlation between the individual loss and the index.


Subject(s):
Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/22007
Total Pages:
22
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-08-24

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)