Indifference pricing of insurance contracts in a product space model (Q1424712)

The author applies the financial variance and standard deviation principles of \textit{M. Schweizer} [Insur. Math. Econ. 28, 31--47 (2001; Zbl 1017.91031)] for valuation of insurance contracts. These principles are financial transformations of the classical actuarial variance and standard deviation principles. He takes into consideration the possibilities of hedging on financial markets. The author proposes a product space model which is used for the analysis of claims that depend on two stochastically independent sources of uncertainty called pure insurance risk and pure financial risk. Via a projection argument for Hilbert spaces it is shown that the variance of the so-called non-hedgeable part of an insurance claim increases when the information is restricted from one filtration to a smaller filtration. This result allows to give simple bounds for the fair premiums for a broad class of insurance contracts. The upper bound is obtained when the seller receives no information concerning the insurance risk, and the lower bound corresponds to the situation where all information is revealed immediately after the selling of the contract. The bounds are relevant for the valuation of some reinsurance contracts.