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The distortion principle for insurance pricing: properties, identification and robustness

Daniela Escobar (daniela.escobar***at***univie.ac.at)
Ch. Georg Pflug (georg.pflug***at***univie.ac.at)

Abstract: Distortion (Denneberg 1990) is a well known premium calculation principle for insurance contracts. In this paper, we study sensitivity properties of distortion functionals w.r.t. the assumptions for risk aversion and robustness w.r.t. ambiguity of the loss distribution. Ambiguity is measured by the Wasserstein distance. In addition to the direct problem we also study the inverse problem, that is how to identify the distortion density on the basis of observations of insurance premia.

Keywords: Ambiguity - Distortion premium - Premium principles - Wasserstein distance

Category 1: Applications -- OR and Management Sciences

Category 2: Robust Optimization

Category 3: Applications -- OR and Management Sciences (Finance and Economics )

Citation: Available on Optimization Online

Download: [Postscript][PDF]

Entry Submitted: 03/02/2018
Entry Accepted: 03/02/2018
Entry Last Modified: 03/15/2018

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