Paper: arXiv 2603.18969

Authors: Shunzhi Pang

Abstract

As insurers increasingly behave like financial intermediaries and actively participate in capital markets, understanding the dependence structure between insurance and financial risks becomes crucial for insurers’ operations. This paper studies dynamic equilibrium insurance pricing when insurers face ambiguity about the correlation between insurance and financial risks and optimally choose underwriting and investment strategies under worst-case beliefs. Correlation ambiguity can generate multiple equilibrium regimes. Contrary to conventional intuition, we find ambiguity does not necessarily increase insurance prices nor reduce insurers’ utility.

Complexity vs Empirical Score

  • Math Complexity: 8.0/10
  • Empirical Rigor: 3.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper relies heavily on advanced stochastic control, differential games, and ambiguity aversion models to derive insurance pricing dynamics under uncertainty. However, it is primarily a theoretical framework with limited empirical backtesting or real-world dataset validation.

Research Flowchart

  flowchart TD
    A[Research Goal: Dynamic Equilibrium Insurance Pricing under Correlation Ambiguity] --> B[Model Inputs: Insurance Risks, Multi-Asset Financial Risks & Correlation Uncertainty]
    B --> C[Methodology: Max-Min Utility Optimization under Worst-Case Beliefs]
    C --> D[Computational Process: Solve Hamilton-Jacobi-Bellman Equations for Underwriting & Investment]
    D --> E[Key Outcomes: Multiple Equilibrium Regimes & Non-Monotonic Effects on Prices/Utility]

Cited References (64)

  1. A Study on the Risk-Adjusted Insurance Market Equilibrium and Regulation Coordination (2013)
  2. The dynamics of insurance prices (2016)
  3. Understanding the ownership structure of corporate bonds (2023)
  4. Generalized robustness and dynamic pessimism (2020)
  5. Super contact and related optimality conditions (1991)
  6. Insurance pricing in an equilibrium model (2023)
  7. Optimal investment for insurer with jump-diffusion risk process (2005)
  8. Insurers’ Investments and Insurance Prices (2024)
and 56 more
  1. Risk Management and Insurance (2004)
  2. The dynamics of competitive insurance markets (1994)
  3. The determination of fair profits for the property-liability insurance firm (1982)
  4. Robust investment for insurers with correlation ambiguity (2024)
  5. Financial Economics of Insurance (2023)
  6. The cost of financial frictions for life insurers (2015)
  7. The fragility of market risk insurance (2022)
  8. Shadow insurance (2016)
  9. Regulatory limits to risk management (2023)
  10. How do financial constraints affect product pricing? E vidence from weather and life insurance premiums (2022)
  11. Conflicting interests and the effect of fiduciary duty: E vidence from variable annuities (2022)
  12. Insurers as asset managers and systemic risk (2022)
  13. Life insurance convexity (2023)
  14. Aggregate lapsation risk (2024)
  15. A demand system approach to asset pricing (2019)
  16. Investor-driven corporate finance: Evidence from insurance markets (2021)
  17. Optimal investment for an insurer to minimize its probability of ruin (2004)
  18. Robust optimal reinsurance and investment strategies for an AAI with multiple risks (2019)
  19. Robust optimal control for an insurer with reinsurance and investment under H eston’s stochastic volatility model (2013)
  20. Optimal time-consistent investment and reinsurance policies for mean-variance insurers (2011)
  21. Robust equilibrium reinsurance-investment strategy for a mean–variance insurer in a model with jumps (2016)
  22. Dynamic pricing of general insurance in a competitive market (2007)
  23. Pricing general insurance using optimal control theory (2005)
  24. Underwriting strategy in a competitive insurance environment (1986)
  25. Equilibrium pricing of general insurance policies (2012)
  26. Insurance with multiple insurers: A game-theoretic approach (2018)
  27. A dynamic pricing game for general insurance market (2021)
  28. The Supply of Insurance (2021)
  29. Alpha-maxmin mean-variance reinsurance-investment strategy under negative risk dependence between two markets (2025)
  30. Dynamic investment-driven insurance pricing and optimal regulation — → 2410.18432
  31. The fluctuations of insurers’ risk appetite (2022)
  32. Portfolio optimization with ambiguous correlation and stochastic volatilities (2016)
  33. G -expectation, G - B rownian motion and related stochastic calculus of I t ^o type (2007)
  34. Multi-dimensional G - B rownian motion and related stochastic calculus under G -expectation (2008)
  35. Nonlinear Expectations and Stochastic Calculus under Uncertainty (2019)
  36. Volatility Ambiguity, Portfolio Decisions, and Equilibrium Asset Pricing (2025)
  37. The evolution from life insurance to financial engineering (2021)
  38. An economic premium principle (1980)
  39. The general economic premium principle (1984)
  40. Risk, U ncertainty and P rofit (1921)
  41. Risk, ambiguity, and the Savage axioms (1961)
  42. Risk, ambiguity, and insurance (1989)
  43. Ambiguity and underwriter decision processes (1995)
  44. Robust Insurance Pricing and Liquidity Management — → 2510.15709
  45. Ambiguity and insurance: capital requirements and premiums (2019)
  46. Optimal investment and consumption problems under correlation ambiguity (2020)
  47. Ambiguous correlation (2019)
  48. Pricing ambiguity in catastrophe risk insurance (2021)
  49. Ambiguity aversion: A new perspective on insurance pricing (2011)
  50. Insurance pricing under ambiguity (2014)
  51. Pricing insurance and warranties: A mbiguity and correlated risks (1992)
  52. Insurer ambiguity and market failure (1993)
  53. Ambiguity aversion in the field of insurance: I nsurers’ attitude to imprecise and conflicting probability estimates (2007)
  54. Is imprecise knowledge better than conflicting expertise? E vidence from insurers’ decisions in the U nited S tates (2011)
  55. Optimal reinsurance and investment strategies for insurers with mispricing and model ambiguity (2017)
  56. Optimal reinsurance to minimize the discounted probability of ruin under ambiguity (2019)

2 of 64 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.