A family of premium principles based on mixtures of TVaRs

Miguel A. Sordo, Antonia Castaño-Martínez and Gema Pigueiras

Insurance: Mathematics and Economics, 2016, vol. 70, issue C, 397-405

Abstract: Risk-adjusted distributions are commonly used in actuarial science to define premium principles. In this paper, we claim that an appropriate risk-adjusted distribution, besides satisfying other desirable properties, should be well-behaved under conditioning with respect to the original risk distribution. Based on a sequence of such risk-adjusted distributions, we introduce a family of premium principles that gradually incorporate the degree of risk-aversion of the insurer in the risk loading. Members of this family are particular distortion premium principles that can be represented as mixtures of TVaRs, where the weights in the mixture reflect the attitude toward risk of the insurer. We make a systematic study of this family of premium principles.

Keywords: Tail value-at-risk; Premium principle; Risk measure; Order statistics; Distortion function (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:70:y:2016:i:c:p:397-405

DOI: 10.1016/j.insmatheco.2016.07.006

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