AN ITERATIVITY CONDITION FOR THE MEAN-VALUE PRINCIPLE UNDER CUMULATIVE PROSPECT THEORY

Marek Kaluszka and Michał Krzeszowiec

ASTIN Bulletin, 2013, vol. 43, issue 1, 61-71

Abstract: In this paper, we present the full characterization of the iterativity condition for the mean-value principle under the cumulative prospect theory. It turns out that the premium principle is iterative for exactly six pairs of probability distortion functions. Some of the corresponding premium principles are the classical mean-value principle, essential infimum or essential supremum of the random loss. Moreover, from the proof of the main theorem of this paper, it follows that the iterativity of the mean-value principle is equivalent to the iterativity of the generalized Choquet integral.

Date: 2013
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