Optimal financial and ordering decisions of a firm with insurance contract
This paper examines the impact of a bank’s risk limit on the financial and ordering decisions of a capital-constrained firm with insurance contract. All our major results can be computed via explicit expressions. It is shown that the bank will control its risk to be below the risk limit through sett...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Vilnius Gediminas Technical University
2015-03-01
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| Series: | Technological and Economic Development of Economy |
| Subjects: | |
| Online Access: | https://journals.vgtu.lt/index.php/TEDE/article/view/1053 |
| _version_ | 1828949625043681280 |
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| author | Wenli Wang Jianwen Luo |
| author_facet | Wenli Wang Jianwen Luo |
| author_sort | Wenli Wang |
| collection | DOAJ |
| description | This paper examines the impact of a bank’s risk limit on the financial and ordering decisions of a capital-constrained firm with insurance contract. All our major results can be computed via explicit expressions. It is shown that the bank will control its risk to be below the risk limit through setting a loan limit and the firm can make the loan limit increase by buying a deductible insurance policy. It is also shown that the repayment demand level needed to avoid bankruptcy will not be affected by the insurance policy. We derive the firm’s optimal ordering quantity and insurance coverage level under a downside risk measurement and a variance risk measurement separately. It is shown that the firm should pay more attention to whether to buy insurance or not under the downside risk measurement and how much insurance coverage to buy under the variance risk measurement. Under the downside risk measurement, once the firm decides to buy insurance, the optimal coverage level is independent of the bank’s risk limit. We also show that the insurance contract has a more obvious effect on the profit increases when the selling price is high or the bank’s risk limit is low.
First published online: 18 Jun 2014 |
| first_indexed | 2024-12-14T06:10:09Z |
| format | Article |
| id | doaj.art-5b7af1f1650f42b5b136efd5ca8e1f5b |
| institution | Directory Open Access Journal |
| issn | 2029-4913 2029-4921 |
| language | English |
| last_indexed | 2024-12-14T06:10:09Z |
| publishDate | 2015-03-01 |
| publisher | Vilnius Gediminas Technical University |
| record_format | Article |
| series | Technological and Economic Development of Economy |
| spelling | doaj.art-5b7af1f1650f42b5b136efd5ca8e1f5b2022-12-21T23:14:10ZengVilnius Gediminas Technical UniversityTechnological and Economic Development of Economy2029-49132029-49212015-03-0121210.3846/20294913.2013.877095Optimal financial and ordering decisions of a firm with insurance contractWenli Wang0Jianwen Luo1School of Economics and Management, Taiyuan University of Science and Technology, 030024 Taiyuan, P.R. ChinaSchool of Management, Shanghai Jiao Tong University, 200052 Shanghai, P.R. ChinaThis paper examines the impact of a bank’s risk limit on the financial and ordering decisions of a capital-constrained firm with insurance contract. All our major results can be computed via explicit expressions. It is shown that the bank will control its risk to be below the risk limit through setting a loan limit and the firm can make the loan limit increase by buying a deductible insurance policy. It is also shown that the repayment demand level needed to avoid bankruptcy will not be affected by the insurance policy. We derive the firm’s optimal ordering quantity and insurance coverage level under a downside risk measurement and a variance risk measurement separately. It is shown that the firm should pay more attention to whether to buy insurance or not under the downside risk measurement and how much insurance coverage to buy under the variance risk measurement. Under the downside risk measurement, once the firm decides to buy insurance, the optimal coverage level is independent of the bank’s risk limit. We also show that the insurance contract has a more obvious effect on the profit increases when the selling price is high or the bank’s risk limit is low. First published online: 18 Jun 2014https://journals.vgtu.lt/index.php/TEDE/article/view/1053capital constraintdeductible insurancefirm financingnewsvendorrisk |
| spellingShingle | Wenli Wang Jianwen Luo Optimal financial and ordering decisions of a firm with insurance contract Technological and Economic Development of Economy capital constraint deductible insurance firm financing newsvendor risk |
| title | Optimal financial and ordering decisions of a firm with insurance contract |
| title_full | Optimal financial and ordering decisions of a firm with insurance contract |
| title_fullStr | Optimal financial and ordering decisions of a firm with insurance contract |
| title_full_unstemmed | Optimal financial and ordering decisions of a firm with insurance contract |
| title_short | Optimal financial and ordering decisions of a firm with insurance contract |
| title_sort | optimal financial and ordering decisions of a firm with insurance contract |
| topic | capital constraint deductible insurance firm financing newsvendor risk |
| url | https://journals.vgtu.lt/index.php/TEDE/article/view/1053 |
| work_keys_str_mv | AT wenliwang optimalfinancialandorderingdecisionsofafirmwithinsurancecontract AT jianwenluo optimalfinancialandorderingdecisionsofafirmwithinsurancecontract |