In finance the existence of corporate risk management is due to imperfections in financial markets. One of the main imperfections is associated with the cost of corporate risk that firms assume. Costly corporate risk creates a set of frictional costs and thereby decreases corporate value. Financial corporations manage their risk to reduce the expected value of frictional costs and enhance shareholders' value, and do so using a wide variety of tools. This dissertation primarily considers an insurance company as a special type of financial corporation leveraged by risky debt, and investigates the existence of risk management incentives in insurance in the presence of frictional costs such as financial distress costs and costs caused by the convexity of the corporate tax rate. Here one of the main tool of risk hedging is reinsurance, a classical tool for risk transfer in insurance, and this dissertation investigates demand for reinsurance in insurer value creation. Insurer risk management problems are also investigated here in a dynamic setting, where the main objective is to find optimal reinsurance and dividend payments under which the expected present value of future dividends is maximised. This dissertation also generalizes some classic actuarial results of reinsurance optimization under the mean-variance criterion. In this work optimal reinsurance is found endogenously for different reinsurance premium principle using standard methods of convex analysis. Finally this work considers an integrated market consisting of insureds, insurers and reinsurers, and studies the effect of the presence of reinsurance in this market on insurance price.
| Identifer | oai:union.ndltd.org:ADTP/235748 |
| Date | January 2005 |
| Creators | Krvavych, Yuriy, Actuarial Studies, Australian School of Business, UNSW |
| Publisher | Awarded by:University of New South Wales. School of Actuarial Studies |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | Copyright Yuriy Krvavych, http://unsworks.unsw.edu.au/copyright |
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