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Pricing of Deposit Insurance Considering Investment, Deductibles and Policy Limit (Ostaszewski K.)

Deposit Insurance

Abstract We discuss the risk-based valuation model for deposit insurance. We establish models of determining the premium rate of deposit insurance considering the deductibles, the investment activities of the deposit insurer, and the requirements of capital regulation. Based on the criterion of safety first proposed by Roy (1952), we discuss selection of the investment policy of deposit insurer under stochastic return rates. We also propose a plan of claim payment with upper limit that is a decreasing function of the insolvency probability instead of a fixed value in order to discourage bank’s risk-taking behaviors, and provide an approach to determine the premium rate in this case. Finally, we discuss the pricing model of deposit insurance with the consideration time-varying default risk.
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Libref/ Ostaszewski K. (2011) "Pricing of Deposit Insurance Considering Investment, Deductibles and Policy Limit", pp. 1 - 23
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