Research on insurance pricing under option game based on Black-Scholes model

• Published in: SHS web of conferences 2024, Vol.208, p.3005
• Main Author: Zhang, Yicheng
• Format: Article
• Language: English
• ISSN: 2261-2424; 2261-2424
• DOI: 10.1051/shsconf/202420803005

The pricing of insurance products has always occupied a central position in the insurance business and has long been an important focus of academic research. With the development of theory, the combination of option theory and game theory provides a new analytical perspective for insurance pricing. Specifically, insurance can be viewed as a kind of option so that the strategies in option game theory can be applied to determine a reasonable premium level. In this context, this study aims to explore in depth how option game theory can be applied to the insurance pricing problem. First, this paper defines insurance as a special form of option and tries to borrow the classical option pricing model, i.e., the Black-Scholes model, to explore the insurance pricing problem in this new perspective. The Black-Scholes model is an important tool in the field of option pricing, through which a reasonable insurance pricing approach can be derived. Secondly, this paper further introduces the concept of game theory and constructs a basic framework of games in insurance pricing. In this framework, the interaction between insurance companies and policyholders is regarded as a game process, and the decision-making behavior of both parties directly affects the price formation of insurance. Game theory provides a new theoretical basis for understanding the pricing mechanism in the insurance market. Finally, this paper focuses on the potential application of American put options in insurance pricing based on option game theory.