Selected Working Papers

2. "Ambiguity Aversion and State-Dependent Insurances" (with Yuanying Guan) working paper

It has been established that ambiguity aversion increases the optimal demand of (self)-insurance due to the resulting mean-preserving contraction in the distribution of expected utility. We extend the existing framework by further permitting the insurance indemnities to vary based on realized states of the world. We show that ambiguity-averse agents will always strictly prefer state-dependent insurances over ones with fixed indemnities. Our results also hold when the underlying states cannot be directly observed, but are partially correlated with some observable indicators based on which indemnities are contingent.

1. "On the Economics of Life Settlements" (with Daniel Bauer)

Life settlements provide the possibility for individuals to convert their life insurance policies into cash in a secondary market transaction. Hence, this additional option is welcome from current policyholders’ point of view, but the reasons for the attractiveness to financial investors as well as the equilibrium impacts on life insurers and future policyholders are not immediately clear.

This paper presents a model to analyze and explain the details of life settlement transactions. Moreover, we investigate the potential welfare effects of a secondary life insurance market. One of our key findings is that although a perfect market for life settlements could be welfare-enhancing, high fixed costs prevailing in these transactions may alleviate or even invert this effect.