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Minimizing the Cost of Risk With Simulation Optimization Technique


  • Yu Lei

    1. Yu Lei is Assistant Professor of Insurance, Barney School of Business, University of Hartford, 418 Auerbach, 200 Bloomfield Avenue, West Hartford, CT 06117; phone: 860-768-4682; fax: 860-768-4911; e-mail: This article was subject to double-blind peer review.
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For risk managers, one overarching goal is to help their organizations maximize stakeholders’ value, which can be achieved by minimizing the cost of risk. Oftentimes such optimization decisions have to be made under uncertainty. This article presents a teaching note that demonstrates how to use simulation-based software to run optimization involving uncertain factors. Specifically, a hypothetical example regarding workers’ compensation claims cost was created to provide a step-by-step instruction for conducting simulation optimization.