The classical zero-utility principle of premium calculation does not take into account the time-lag between the premium payment and the damage reimbursement. an intertemporal model is proposed and premiums from the point of view of both trading-counterparts are re-calculated. As intuition can suggest, the introduction of time induces a premium reduction for both traders. Moreover, in the case of exponential utilities the barganing could be encouraged by the introduction of delays in the delay in the damage reimbursement.
Zero-Utility Premium and Time
TIBILETTI, Luisa
1997-01-01
Abstract
The classical zero-utility principle of premium calculation does not take into account the time-lag between the premium payment and the damage reimbursement. an intertemporal model is proposed and premiums from the point of view of both trading-counterparts are re-calculated. As intuition can suggest, the introduction of time induces a premium reduction for both traders. Moreover, in the case of exponential utilities the barganing could be encouraged by the introduction of delays in the delay in the damage reimbursement.
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