Premium Calculation: Why Standard Deviation Should be Replaced by Absolute Deviation1

Dieter Denneberg

ASTIN Bulletin, 1990, vol. 20, issue 2, 181-190

Abstract: Average absolute (instead of quadratic) deviation from median (instead of expectation) is better suited to determine the safety loading for insurance premiums than standard deviation: The corresponding premium functionals behave additive under the practically relevant risk sharing schemes between first insurer and reinsurer.

Date: 1990
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