Zero capital definition
Zero capital means that the company sheds all capital that it holds, or the optimal B∗ = −a(1 − τ ). ”Positive capital” means that the company would keep a positive amount of capital, or the optimal B∗ > −a(1 − τ ). ”Full exposure” means that the company writes as much insurance as it can, while not as much under ”Limited exposure”. Figure 3 illustrates the ”zero capital” and ”full exposure” and the value function under this policy. Figure 4 illustrates the ”positive capital” and ”limited exposure” and the value function under this policy. The Figure 4, in fact, shows the combination of two policies under large last-period loss realization on both lines. When the company has small last-period exposure in workers’ compensation, the optimal policy is ”zero capital” and ”full exposure”, corresponding to the left part of figure 4b and figure 4c. When the company has large last- period exposure in workers’ compensation, the optimal policies become ”positive capital” and ”limited exposure”, corresponding to the right part of figure 4b and figure 4c. The