We present a general approach to the pricing of products in finance and
insurance in the multi-period setting. It is a combination of the utility
indifference pricing and optimal intertemporal risk allocation. We give a
characterization of the optimal intertemporal risk allocation by a first order
condition. Applying this result to the exponential utility function, we obtain
an essentially new type of premium calculation method for a popular type of
multi-period insurance contract. This method is simple and can be easily
implemented numerically. We see that the results of numerical calculations are
well coincident with the risk loading level determined by traditional
practices. The results also suggest a possible implied utility approach to
insurance pricing.Comment: 20 pages, 3 figure
