On Optimal Reinsurance Arrangements

The purpose of this paper is to develop a theoretical framework within which the optimal reinsurance arrangement for catastrophic risks is explored and derived. In the model, it is assumed that the insurer values the stability of its underwriting results in purchasing reinsurance protection. The optimal solutions to the model are obtained through numerical simulation and intend to provide justifications and explanations for the profile of reinsurance purchase that has been observed in practice.