Constructing Approximate Actuarial Risk Aversion Coefficient

Authors

  • M.G. Ogungbenle

Keywords:

Risk aversion; Functional; Equilibrium; Integral; Utility

Abstract

In this paper we aim to construct an approximate deterministic aversion risk coefficients relating to future utility patterns and discuss an analytic model for investigating the behaviour of risk aversion random function together with the influence it exerts on utility function. By initiating Newton’s process the result shows that the scheme holder’s risk premium for small actuarially neutral risk , is the product of half of the aversion and the volatility term . The paper stresses the importance of numerical methods in actuarial risk theory and also brings our attention to risk measurement applications. Furthermore it describes the procedure of estimating the intensity of aversion co-efficient using numerical algorithm. It relies heavily on the analytic properties of utility functions whose gradient function does not vanish. The estimation of aversion coefficient lends credence to risk theory because of its potency to measure riskiness of insurance portfolio guiding both risk manager and policy holder either or not to assume risk. However, the estimation of aversion involves a model based on the knowledge of difference or differential equation. In this work, an alternative method of constructing risk aversion which has some optimal properties have been employed.

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Published

2022-04-14

How to Cite

Ogungbenle, M. (2022). Constructing Approximate Actuarial Risk Aversion Coefficient. JOURNAL OF SCIENCE RESEARCH, 18(1), 10. Retrieved from http://jsribadan.ng/index.php/ojs/article/view/128