Optimal pricing of a heterogeneous portfolio for a given risk level

Yaniv Zaks; Esther Frostig; Benny Levikson

doi:10.2143/AST.36.1.2014148

Optimal pricing of a heterogeneous portfolio for a given risk level

Yaniv Zaks, Esther Frostig, Benny Levikson

Department of Statistics

Research output: Contribution to journal › Article › peer-review

Abstract

Consider a portfolio containing heterogeneous risks, where the policyholders' premiums to the insurance company might not cover the claim payments. This risk has to be taken into consideration in the premium pricing. On the other hand, the premium that the insureds pay has to be fair. This fairness is measured by the distance between the risk and the premium paid. We apply a non-linear programming formulation to find the optimal premium for each class so that the risk is below a given level and the weighted distance between the risk and the premium is minimized. We consider also the dual problem: minimizing the risk level for a given weighted distance between risks and premium.

Original language	English
Pages (from-to)	161-185
Number of pages	25
Journal	ASTIN Bulletin
Volume	36
Issue number	1
DOIs	https://doi.org/10.2143/AST.36.1.2014148
State	Published - May 2006

Keywords

Dual problem
Heterogeneous portfolio
Non-linear programming
Positive definite matrix

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

Access to Document

10.2143/AST.36.1.2014148

Cite this

@article{c20ead0dd5744a15a5b83469a1249cbb,

title = "Optimal pricing of a heterogeneous portfolio for a given risk level",

abstract = "Consider a portfolio containing heterogeneous risks, where the policyholders' premiums to the insurance company might not cover the claim payments. This risk has to be taken into consideration in the premium pricing. On the other hand, the premium that the insureds pay has to be fair. This fairness is measured by the distance between the risk and the premium paid. We apply a non-linear programming formulation to find the optimal premium for each class so that the risk is below a given level and the weighted distance between the risk and the premium is minimized. We consider also the dual problem: minimizing the risk level for a given weighted distance between risks and premium.",

keywords = "Dual problem, Heterogeneous portfolio, Non-linear programming, Positive definite matrix",

author = "Yaniv Zaks and Esther Frostig and Benny Levikson",

year = "2006",

month = may,

doi = "10.2143/AST.36.1.2014148",

language = "English",

volume = "36",

pages = "161--185",

journal = "ASTIN Bulletin",

issn = "0515-0361",

publisher = "Cambridge University Press",

number = "1",

}

TY - JOUR

T1 - Optimal pricing of a heterogeneous portfolio for a given risk level

AU - Zaks, Yaniv

AU - Frostig, Esther

AU - Levikson, Benny

PY - 2006/5

Y1 - 2006/5

N2 - Consider a portfolio containing heterogeneous risks, where the policyholders' premiums to the insurance company might not cover the claim payments. This risk has to be taken into consideration in the premium pricing. On the other hand, the premium that the insureds pay has to be fair. This fairness is measured by the distance between the risk and the premium paid. We apply a non-linear programming formulation to find the optimal premium for each class so that the risk is below a given level and the weighted distance between the risk and the premium is minimized. We consider also the dual problem: minimizing the risk level for a given weighted distance between risks and premium.

AB - Consider a portfolio containing heterogeneous risks, where the policyholders' premiums to the insurance company might not cover the claim payments. This risk has to be taken into consideration in the premium pricing. On the other hand, the premium that the insureds pay has to be fair. This fairness is measured by the distance between the risk and the premium paid. We apply a non-linear programming formulation to find the optimal premium for each class so that the risk is below a given level and the weighted distance between the risk and the premium is minimized. We consider also the dual problem: minimizing the risk level for a given weighted distance between risks and premium.

KW - Dual problem

KW - Heterogeneous portfolio

KW - Non-linear programming

KW - Positive definite matrix

UR - http://www.scopus.com/inward/record.url?scp=33847248177&partnerID=8YFLogxK

U2 - 10.2143/AST.36.1.2014148

DO - 10.2143/AST.36.1.2014148

M3 - Article

AN - SCOPUS:33847248177

SN - 0515-0361

VL - 36

SP - 161

EP - 185

JO - ASTIN Bulletin

JF - ASTIN Bulletin

IS - 1

ER -

Optimal pricing of a heterogeneous portfolio for a given risk level

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this