What the study found
The study found that, in an asymmetrically weighted mean square error framework, basis risk-minimizing payment schemes for pure parametric and parametric index insurance contracts can be expressed as conditional expectiles. Expectiles are risk measures based on asymmetrically weighted averages.
Why the authors say this matters
The authors say this matters because parametric insurance is operationally efficient and cost effective, but it can create basis risk, meaning payouts may differ from actual damage. The study suggests that expressing payment schemes through conditional expectiles offers a way to address that mismatch.
What the researchers tested
The researchers examined pure parametric and parametric index insurance contracts. They used an asymmetrically weighted mean square error framework and related the results to stochastic orderings; they also note that regression approaches allow implementation in practice. The results were visualized for cyber risks and agricultural insurance.
What worked and what didn't
The basis risk-minimizing payment schemes were shown to be conditional expectiles of the policyholder’s true loss given a compensation-triggering incident. The abstract says this applies to both pure parametric and parametric index insurance contracts. It also states that regression approaches allow easy implementation in practice.
What to keep in mind
The abstract does not describe detailed limitations, and no specific empirical performance numbers are given in the available summary. The results are presented in a modeling framework and are visualized for cyber risks and agricultural insurance.
Key points
- Basis risk-minimizing payment schemes can be written as conditional expectiles.
- The result applies to pure parametric and parametric index insurance contracts.
- The framework used an asymmetrically weighted mean square error approach.
- The authors link the results to stochastic orderings and regression-based implementation.
- Examples are visualized for cyber risks and agricultural insurance.
Disclosure
- Research title:
- Expectiles can minimize basis risk in parametric insurance
- Authors:
- Martin Maier, Matthias Scherer
- Institutions:
- Technical University of Munich
- Publication date:
- 2026-02-26
- OpenAlex record:
- View
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