A model of river flood insurance using stochastic cooperative game theory

Patterson, James. (2004). A model of river flood insurance using stochastic cooperative game theory Honours Thesis, School of Economics, The University of Queensland.

       
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Author Patterson, James.
Thesis Title A model of river flood insurance using stochastic cooperative game theory
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2004
Thesis type Honours Thesis
Total pages 78
Language eng
Subjects 14 Economics
Formatted abstract In this thesis a model of river flood insurance is developed using stochastic cooperative game theory. The model is used to examine the case of river flood insurance in which there is a directional flow and accumulation of stochastic loss or risk. The thesis reviews the literature on the use of stochastic cooperative game theory to determine stable insurance contracts. Concepts such as Pareto optimality and the core of stochastic cooperative games are used to determine an optimal allocation of risk and a fair distribution of premiums among a group of individuals and insurers. It is shown that the model of Suijs, De Waegenaere and Borni (1998) can be extended to incorporate the directional flow and accumulation of risk along a linear river by exploiting certainty equivalent properties of the original model. Finally, a certainty equivalent analogue of the Shapley value is suggested as a fair premium for the river flood insurance problem.

 
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