Anquandah, JS and Bogachev, LV orcid.org/0000-0002-2365-2621 (2019) Optimal Stopping and Utility in a Simple Model of Unemployment Insurance. Risks, 7 (3). 94. ISSN 2227-9091
Abstract
Managing unemployment is one of the key issues in social policies. Unemployment insurance schemes are designed to cushion the financial and morale blow of loss of job but also to encourage the unemployed to seek new jobs more proactively due to the continuous reduction of benefit payments. In the present paper, a simple model of unemployment insurance is proposed with a focus on optimality of the individual’s entry to the scheme. The corresponding optimal stopping problem is solved, and its similarity and differences with the perpetual American call option are discussed. Beyond a purely financial point of view, we argue that in the actuarial context the optimal decisions should take into account other possible preferences through a suitable utility function. Some examples in this direction are worked out.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | (c) 2019 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/). |
Keywords: | insurance; unemployment; optimal stopping; geometric Brownian motion; martingale; free boundary problem; American call option; utility |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Mathematics (Leeds) > Statistics (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 30 Aug 2019 10:19 |
Last Modified: | 03 Sep 2019 09:10 |
Status: | Published |
Publisher: | MDPI |
Identification Number: | 10.3390/risks7030094 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:150192 |