Quota share comparison at matched retained variance

ID: quota-share-comparison-at-matched-retained-variance

Suppose has finite positive variance , and a matching quota share reinsurance contract exists with fraction . The Cauchy-Schwarz inequality bounds . Expanding then proves that the matching quota share minimizes the other party's variance, and hence the sum of party variances. Claimwise retentions in a compound Poisson distribution automatically satisfy the required variance range, because .

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