Purpose – The purpose of this study is to introduce an insurance risk-exchange model in the presence of background risk and private information and which solves the optimal insurance and investment decisions simultaneously. Design/methodology/approach – The model undertakes a continuous-time...

Purpose – This article aims to apply a multi-period model of insurance market equilibrium to solve for the insureds' optimal demand for insurance, as well as insurers' optimal supply. Design/methodology/approach – Most approaches to competitive equilibrium in the insurance market involve the...

Purpose – This editorial, the second of a two-part series, proposes a new measure of risk for analyzing highly non-normal (i.e. asymmetric and long-tailed) random variables in the context of both investment and insurance portfolios. The proposed measure replaces the p-norm-based definition of...

Purpose – The purpose of this editorial is to consider the importance of random samples subject to a constant-sum constraint (that is, a succession of identically distributed random variables that add up to some predetermined constant) in human experience and intuition....

Purpose – The paper aims to explore a risk-finance context in which less information may be preferable to more information. Design/methodology/approach – Insurance companies collect a variety of information on potential policyholders to support two fundamental components of risk...

Purpose – The purpose of this paper is to explore the roles of diversification, hedging, and a third risk-reduction process – “pacification” – in risk finance. Design/methodology/approach – After briefly reviewing the concepts of diversification and hedging, a simple mathematical...

Purpose – In this two-part series, this paper seeks to consider certain intriguing aspects of randomness, the basic mathematical concept used to model financial risk and other unknown quantities in the physical world. Design/methodology/approach – Part 1 applies concepts from quantum physics...

Purpose – The purpose of this two-part series is to consider the role of the “scientific method” (SM) in human understanding, questioning both its consistency in actual practice and its reasonableness as a system of philosophy and action. Design/methodology/approach – Part 2 considers...

Purpose – The editorial aims to illustrate a major weakness of frequentist estimation – overlooking prior beliefs that are clearly relevant. Design/methodology/approach – A hypothetical forecasting problem is considered in which a law-enforcement officer has to determine who will be the...

Purpose – The purpose of this editorial is to consider whether or not the classical “Lanchester equations” of military combat are useful for modeling the financial risks associated with contemporary terrorist attacks. Design/methodology/approach – The paper begins by describing...