Risk Premium For Dependent Risks Using Utility Copulas And Risk Aversion

Abstract

In order to explain the dependency structure of random variables, copula functions are frequently used in areas such as insurance, actuarial and risk. In addition, the concept of risk aversion can be considered as a decision making parameter and insurance companies can calculate the risk premium by taking advantage of this parameter. In this study, risk aversion coefficient and risk premium based on utility copulas were calculated for dependent bivariate risks. For this, bivariate risk aversion coefficient and risk premium vector of the utility copula defined in Kettler (2007) were found. Numerical results are presented in tables and graphs for various dependency parameter values.

Keywords

• Bivariate risk aversion,utility copula,dependence,bivariate utility function,risk premium vector

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