This study examines how basis ambiguity influences the demand for index insurance. Ambiguity is introduced into the statistical relationship between the loss and the index because they are more difficult to guess than the occurrence of the loss and the index individually. Basis ambiguity lowers...

This study considers the optimal demand for insurance in the presence of state-dependent background uncertainty. Its uncertainty depends on the states that are clarified by the loss occurrence, which are called the loss state and no-loss state. First, we consider a situation in which the...