Spatial Stochastic Model for Optimization Capacity of Insurance Networks Under Dependent Catastrophic Risks: Numerical Experiments

Ermolieva, T.Y., Ermoliev, Y.M., & Norkin, V.I. (1997). Spatial Stochastic Model for Optimization Capacity of Insurance Networks Under Dependent Catastrophic Risks: Numerical Experiments. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-97-028

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Abstract

The paper proposes for the general framework for the optimization capacity of an insurance industry in responding to catastrophic risks. Explicit geographical representation allows for sufficient differentiation of property values and insurance coverages in different parts of the region and for realistic modeling of catastrophes in space and time. Numerical experiments demonstrate the possibility of stochastic optimization techniques for optimal diversification of catastrophic exposure. This is important for increasing the stability of insurers, their profits and for the financial protection of the population.

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