Similar risks have similar prices: A useful and exact quantification

Stephen J. Mildenhall

Insurance: Mathematics and Economics, 2022, vol. 105, issue C, 203-210

Abstract: We introduce a straightforward algorithm to determine a range of prices for a new risk consistent with known pricing on one or more risks and the assumption prices are determined by a law invariant, coherent or convex risk measure. In many cases the algorithm produces bounds tight enough to be useful in practice. We illustrate the theory by applying it to evaluating portfolio-level pricing by line and pricing for high limits policies relative to low limits. We also show how the theory can test if prices for a set of risks are generated by a single risk measure and show the conditions for this to be true are very strict.

Keywords: Law invariant; Coherent risk measure; Convex risk measure; Distortion risk measure; Insurance pricing; Comonotonic (search for similar items in EconPapers)
JEL-codes: G19 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:105:y:2022:i:c:p:203-210

DOI: 10.1016/j.insmatheco.2022.04.006

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