Abstract

CHICAIZA, Liliana  and  CABEDO, David. Using the Black-Scholes method for estimating high-cost illness insurance premiums in Colombia. Innovar [online]. 2009, vol.19, n.33, pp.119-130. ISSN 0121-5051.

This article applied the Black-Scholes option valuation formula to calculating high-cost illness reinsurance premiums in the Colombian health system. The coverage pattern used in reinsuring high-cost illnesses was replicated by means of a European call option contract. The option's relevant variables and parameters were adapted to an insurance market context. The premium estimated by the Black- Scholes method fell within the range of premiums estimated by the actuarial method.

Keywords : reinsurance; catastrophic illness; option pricing.

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