Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance
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 pr...
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| Format: | Article |
| Language: | English |
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MDPI AG
2019-09-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/7/3/94 |
| _version_ | 1819046802981126144 |
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| author | Jason S. Anquandah Leonid V. Bogachev |
| author_facet | Jason S. Anquandah Leonid V. Bogachev |
| author_sort | Jason S. Anquandah |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-12-21T10:50:16Z |
| format | Article |
| id | doaj.art-b6e502ab1b124cc7b67d585361688d6a |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-12-21T10:50:16Z |
| publishDate | 2019-09-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-b6e502ab1b124cc7b67d585361688d6a2022-12-21T19:06:40ZengMDPI AGRisks2227-90912019-09-01739410.3390/risks7030094risks7030094Optimal Stopping and Utility in a Simple Modelof Unemployment InsuranceJason S. Anquandah0Leonid V. Bogachev1Department of Statistics, School of Mathematics, University of Leeds, Leeds LS2 9JT, UKDepartment of Statistics, School of Mathematics, University of Leeds, Leeds LS2 9JT, UKManaging 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.https://www.mdpi.com/2227-9091/7/3/94insuranceunemploymentoptimal stoppinggeometric Brownian motionmartingalefree boundary problemAmerican call optionutility |
| spellingShingle | Jason S. Anquandah Leonid V. Bogachev Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance Risks insurance unemployment optimal stopping geometric Brownian motion martingale free boundary problem American call option utility |
| title | Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance |
| title_full | Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance |
| title_fullStr | Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance |
| title_full_unstemmed | Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance |
| title_short | Optimal Stopping and Utility in a Simple Modelof Unemployment Insurance |
| title_sort | optimal stopping and utility in a simple modelof unemployment insurance |
| topic | insurance unemployment optimal stopping geometric Brownian motion martingale free boundary problem American call option utility |
| url | https://www.mdpi.com/2227-9091/7/3/94 |
| work_keys_str_mv | AT jasonsanquandah optimalstoppingandutilityinasimplemodelofunemploymentinsurance AT leonidvbogachev optimalstoppingandutilityinasimplemodelofunemploymentinsurance |