Insurance pricing in small size markets

Amir H. Darooneh

Physica A: Statistical Mechanics and its Applications, 2007, vol. 380, issue C, 411-417

Abstract: In analogy with standard derivation of Tsallis factor in non extensive statistical mechanics, we find the wealth distribution for an economic agent in a conservative exchange market. Tsallis entropic index distinguish between two different regimes, the large and small size market. The Pareto like wealth distribution is obtained in the case of small size market. We consider the insurance market as an example of conservative exchange market and suggest a new method for insurance pricing based on the wealth distribution in the market. We generalize the Esscher transform for the insurance pricing and simulate a real case of the car insurance. The results show the initial wealth of an insurer company in a small size market should be greater than a threshold value.

Keywords: Wealth distribution; Non extensive statistical mechanics; Insurance pricing; Esscher transform (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:380:y:2007:i:c:p:411-417

DOI: 10.1016/j.physa.2007.02.110

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