Optimal Premium Pricing for a Heterogeneous Portfolio of Insurance Risks

Athanasios A. Pantelous, Nicholas E. Frangos and Alexandros A. Zimbidis

Journal of Probability and Statistics, 2009, vol. 2009, 1-18

Abstract:

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.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnljps:451856

DOI: 10.1155/2009/451856

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