Asymptotic Analysis of a Stackelberg Differential Game for Insurance Under Model Ambiguity

Cao et al. (2021) consider a Stackelberg differential game for insurance under model ambiguity. In the main body of the paper, they measure ambiguity via squared-error divergence; then, in the appendix, they briefly consider entropic divergence. In this paper, we show a strong connection between those two divergences. Specifically, if the loss process follows a compound Poisson process (CPP) and ambiguity is measured via entropic divergence, then the Stackelberg equilibrium of the diffusion approximation of the CPP with squared-error divergence approximates the equilibrium for the former model to order Ο(1/sqrt(n)), in which we scale the CPP via n, as in Cohen and Young (2020)