Optimal Premium Pricing for a Heterogeneous Portfolio of Insurance Risks
The paper revisits the classical problem of premium rating within a heterogeneous portfolio of insurance risks using a continuous stochastic control framework. The portfolio is divided into several classes where each class interacts with the others. The risks are modelled dynamically by the means of...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2009-01-01
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| Series: | Journal of Probability and Statistics |
| Online Access: | http://dx.doi.org/10.1155/2009/451856 |
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| Summary: | The paper revisits the classical problem of premium rating within a heterogeneous portfolio of insurance risks using a continuous stochastic control framework. The portfolio is divided into several classes where each class interacts with the others. The risks are modelled dynamically by the means of a Brownian motion. This dynamic approach is also transferred to the design of the premium process. The premium is not constant but equals the drift of the Brownian motion plus a controlled percentage of the respective volatility. The optimal controller for the premium is obtained using advanced optimization techniques, and it is finally shown that the respective pricing strategy follows a more balanced development compared with the traditional premium approaches. |
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| ISSN: | 1687-952X 1687-9538 |