Pricing a Heterogeneous Portfolio Based on a Demand Function

Yaniv Zaks, Esther Frostig and Benny Levikson

North American Actuarial Journal, 2008, vol. 12, issue 1, 65-73

Abstract: Consider a portfolio containing number of risk classes. Each class has its own demand function, which determines the number of insureds in this class as a function of the premium. The insurer determines the premiums based on the number of insureds in each class. The “market” reacts by updating the number of the policyholders, then the insurer updates the premium, and so on. We show that this process has an equilibrium point, and then we characterize this point.

Date: 2008
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DOI: 10.1080/10920277.2008.10597500

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