American Institute of Mathematical Sciences

Advanced
  • Previous Article
    Frequency $H_{2}/H_{∞}$ optimizing control for isolated microgrid based on IPSO algorithm
  • JIMO Home
  • This Issue
  • Next Article
    Optimal pricing and inventory management for a loss averse firm when facing strategic customers
October  2018, 14(4): 1545-1564. doi: 10.3934/jimo.2018020

Analysis of a dynamic premium strategy: From theoretical and marketing perspectives

Wing Yan Lee 1, and  Fangda Liu 2,,

1. 

Department of Mathematics and Statistics, Hang Seng Management College, Hang Shin Link, Siu Lek Yuen, Shatin, N.T., Hong Kong, China
2. 

China Institute for Actuarial Science, Central University of Finance and Economics, China

* Corresponding author: Fangda Liu

Received  February 2017 Revised  June 2017 Published  October 2018 Early access  January 2018

Premium rate for an insurance policy is often reviewed and updated periodically according to past claim experience in real-life. In this paper, a dynamic premium strategy that depends on the past claim experience is proposed under the discrete-time risk model. The Gerber-Shiu function is analyzed under this model. The marketing implications of the dynamic premium strategy will also be discussed.

Keywords: Dynamic premium, discrete-time risk model, Gerber-Shiu function, geometric claims, marketing implications.
Mathematics Subject Classification: Primary: 60E99, 60D05.
Citation: Wing Yan Lee, Fangda Liu. Analysis of a dynamic premium strategy: From theoretical and marketing perspectives. Journal of Industrial & Management Optimization, 2018, 14 (4) : 1545-1564. doi: 10.3934/jimo.2018020
References:
[1]

L. B. Afonso, A. D. Egidio dos Reis and H. R. Waters, Calculating continuous time ruin probabilities for a large portfolio with varying premium, ASTIN Bulletin, 39 (2009), 117-136.  doi: 10.2143/AST.39.1.2038059.  Google Scholar

[2]

L. B. Afonso, A. D. Egidio dos Reis and H. R. Waters, Numerical evaluation of continuous time ruin probabilities for a portfolio with credibility updated premiums, ASTIN Bulletin, 40 (2010), 399-414.  doi: 10.2143/AST.40.1.2049236.  Google Scholar

[3]

L. B. Afonso, Evaluation of ruin probabilities for surplus process with credibility and surplus dependent premium, Ph. D. Thesis, 2008. Google Scholar

[4]

S. Asmussen, On the ruin problem for some adapted premium rules, MaPhySto Research Report No. 5 University of Aarhus, Denmark., 1999. Google Scholar

[5] S. Asmussen and H. Albrecher, Ruin Probabilities, World Scientific, 2010.   Google Scholar
[6]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, Gerber-Shiu analysis with a generalized penalty function, Scandinavian Actuarial Journal, 2010 (2010), 185-199.   Google Scholar

[7]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, Structural properties of Gerber-Shiu function in dependent Sparre Andersen models, Insurance: Mathematics and Economics, 46 (2010), 117-126.  doi: 10.1016/j.insmatheco.2009.05.009.  Google Scholar

[8]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, On orderings and bounds in a generalized sparre andersen risk model, Applied Stochastic Models in Business and Industry, 27 (2011), 51-60.  doi: 10.1002/asmb.837.  Google Scholar

[9]

H. U. Gerber and E. S. W. Shiu, On the time value of ruin, North American Actuarial Journal, 2 (1998), 48-78.  doi: 10.1080/10920277.1998.10595671.  Google Scholar

[10]

D. Landriault, C. Lemieux and G. E. Willmot, An adaptive premium policy with a Bayesian motivation in the classical risk model, Insurance: Mathematics and Economics, 51 (2012), 370-378.  doi: 10.1016/j.insmatheco.2012.06.001.  Google Scholar

[11]

S. Li, D. Landriault and C. Lemieux, A risk model with varying premiums: Its risk management implications, Insurance: Mathematics and Economics, 60 (2015), 38-46.  doi: 10.1016/j.insmatheco.2014.10.010.  Google Scholar

[12]

Z. Li and K. P. Sendova, On a ruin model with both interclaim times and premiums depending on claim sizes, Scandinavian Actuarial Journal, 2015 (2015), 245-265.   Google Scholar

[13]

S. Loisel and J. Trufin, Ultimate ruin probability in discrete time with Buhlmann credibility premium adjustments, Bulletin Francais d'Actuariat, 13 (2013), 73-102.   Google Scholar

[14]

C. C. -L. Tsai and G. Parker, Ruin probabilities: Classical versus credibility, NTU International Conference on Finance, 2004. Google Scholar

[15]

A. Tversky and D. Kahneman, Advances in prospect theory: Cumulative representation of uncertainty, Journal of Risk and Uncertainty, 5 (1992), 297-323.   Google Scholar

[16]

J.-K. Woo, A generalized penalty function for a class of discrete renewal processes, Scandinavian Actuarial Journal, 2012 (2012), 130-152.   Google Scholar

[17]

X. Wu and S. Li, On the discounted penalty function in a discrete time renewal risk model with general interclaim times, Scandinavian Actuarial Journal, 2009 (2009), 281-294.   Google Scholar

[18]

Z. Zhang, Y. Yang and C. Liu, On a perturbed compound Poisson model with varying premium rates, Journal of Industrial and Management Optimization, 13 (2017), 721-736.   Google Scholar

show all references

References:
[1]

L. B. Afonso, A. D. Egidio dos Reis and H. R. Waters, Calculating continuous time ruin probabilities for a large portfolio with varying premium, ASTIN Bulletin, 39 (2009), 117-136.  doi: 10.2143/AST.39.1.2038059.  Google Scholar

[2]

L. B. Afonso, A. D. Egidio dos Reis and H. R. Waters, Numerical evaluation of continuous time ruin probabilities for a portfolio with credibility updated premiums, ASTIN Bulletin, 40 (2010), 399-414.  doi: 10.2143/AST.40.1.2049236.  Google Scholar

[3]

L. B. Afonso, Evaluation of ruin probabilities for surplus process with credibility and surplus dependent premium, Ph. D. Thesis, 2008. Google Scholar

[4]

S. Asmussen, On the ruin problem for some adapted premium rules, MaPhySto Research Report No. 5 University of Aarhus, Denmark., 1999. Google Scholar

[5] S. Asmussen and H. Albrecher, Ruin Probabilities, World Scientific, 2010.   Google Scholar
[6]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, Gerber-Shiu analysis with a generalized penalty function, Scandinavian Actuarial Journal, 2010 (2010), 185-199.   Google Scholar

[7]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, Structural properties of Gerber-Shiu function in dependent Sparre Andersen models, Insurance: Mathematics and Economics, 46 (2010), 117-126.  doi: 10.1016/j.insmatheco.2009.05.009.  Google Scholar

[8]

E. C. K. Cheung, D. Landriault, G. E. Willmot and J.-K. Woo, On orderings and bounds in a generalized sparre andersen risk model, Applied Stochastic Models in Business and Industry, 27 (2011), 51-60.  doi: 10.1002/asmb.837.  Google Scholar

[9]

H. U. Gerber and E. S. W. Shiu, On the time value of ruin, North American Actuarial Journal, 2 (1998), 48-78.  doi: 10.1080/10920277.1998.10595671.  Google Scholar

[10]

D. Landriault, C. Lemieux and G. E. Willmot, An adaptive premium policy with a Bayesian motivation in the classical risk model, Insurance: Mathematics and Economics, 51 (2012), 370-378.  doi: 10.1016/j.insmatheco.2012.06.001.  Google Scholar

[11]

S. Li, D. Landriault and C. Lemieux, A risk model with varying premiums: Its risk management implications, Insurance: Mathematics and Economics, 60 (2015), 38-46.  doi: 10.1016/j.insmatheco.2014.10.010.  Google Scholar

[12]

Z. Li and K. P. Sendova, On a ruin model with both interclaim times and premiums depending on claim sizes, Scandinavian Actuarial Journal, 2015 (2015), 245-265.   Google Scholar

[13]

S. Loisel and J. Trufin, Ultimate ruin probability in discrete time with Buhlmann credibility premium adjustments, Bulletin Francais d'Actuariat, 13 (2013), 73-102.   Google Scholar

[14]

C. C. -L. Tsai and G. Parker, Ruin probabilities: Classical versus credibility, NTU International Conference on Finance, 2004. Google Scholar

[15]

A. Tversky and D. Kahneman, Advances in prospect theory: Cumulative representation of uncertainty, Journal of Risk and Uncertainty, 5 (1992), 297-323.   Google Scholar

[16]

J.-K. Woo, A generalized penalty function for a class of discrete renewal processes, Scandinavian Actuarial Journal, 2012 (2012), 130-152.   Google Scholar

[17]

X. Wu and S. Li, On the discounted penalty function in a discrete time renewal risk model with general interclaim times, Scandinavian Actuarial Journal, 2009 (2009), 281-294.   Google Scholar

[18]

Z. Zhang, Y. Yang and C. Liu, On a perturbed compound Poisson model with varying premium rates, Journal of Industrial and Management Optimization, 13 (2017), 721-736.   Google Scholar

Figure 1.  Strategy 1 ($c_{1} = 4$ and $c_{2} = 6$) vs Strategy 2 ($c = 4$) ($\eta_{1}$ denotes the starting premium)
Figure Options

Download full-size image

Download as PowerPoint slide

Figure 2.  Strategy 1 ($c_{1} = 4$ and $c_{2} = 6$) vs Strategy 2 ($c = 5$)
Figure Options

Download full-size image

Download as PowerPoint slide

Figure 3.  Strategy 1 ($c_{1} = 4$ and $c_{2} = 6$) vs Strategy 2 ($c = 4$)
Figure Options

Download full-size image

Download as PowerPoint slide

Figure 4.  Strategy 1 ($c_{1} = 4$ and $c_{2} = 6$) vs Strategy 2 ($c = 5$)
Figure Options

Download full-size image

Download as PowerPoint slide

[1]

Haixiang Yao, Ping Chen, Miao Zhang, Xun Li. Dynamic discrete-time portfolio selection for defined contribution pension funds with inflation risk. Journal of Industrial & Management Optimization, 2020  doi: 10.3934/jimo.2020166
[2]

Abhyudai Singh, Roger M. Nisbet. Variation in risk in single-species discrete-time models. Mathematical Biosciences & Engineering, 2008, 5 (4) : 859-875. doi: 10.3934/mbe.2008.5.859
[3]

Qingwu Gao, Zhongquan Huang, Houcai Shen, Juan Zheng. Asymptotics for random-time ruin probability in a time-dependent renewal risk model with subexponential claims. Journal of Industrial & Management Optimization, 2016, 12 (1) : 31-43. doi: 10.3934/jimo.2016.12.31
[4]

Yuebao Wang, Qingwu Gao, Kaiyong Wang, Xijun Liu. Random time ruin probability for the renewal risk model with heavy-tailed claims. Journal of Industrial & Management Optimization, 2009, 5 (4) : 719-736. doi: 10.3934/jimo.2009.5.719
[5]

Rongfei Liu, Dingcheng Wang, Jiangyan Peng. Infinite-time ruin probability of a renewal risk model with exponential Levy process investment and dependent claims and inter-arrival times. Journal of Industrial & Management Optimization, 2017, 13 (2) : 995-1007. doi: 10.3934/jimo.2016058
[6]

Tomasz R. Bielecki, Igor Cialenco, Marcin Pitera. A survey of time consistency of dynamic risk measures and dynamic performance measures in discrete time: LM-measure perspective. Probability, Uncertainty and Quantitative Risk, 2017, 2 (0) : 3-. doi: 10.1186/s41546-017-0012-9
[7]

Eduardo Liz. A new flexible discrete-time model for stable populations. Discrete & Continuous Dynamical Systems - B, 2018, 23 (6) : 2487-2498. doi: 10.3934/dcdsb.2018066
[8]

Ming Chen, Hao Wang. Dynamics of a discrete-time stoichiometric optimal foraging model. Discrete & Continuous Dynamical Systems - B, 2021, 26 (1) : 107-120. doi: 10.3934/dcdsb.2020264
[9]

H. L. Smith, X. Q. Zhao. Competitive exclusion in a discrete-time, size-structured chemostat model. Discrete & Continuous Dynamical Systems - B, 2001, 1 (2) : 183-191. doi: 10.3934/dcdsb.2001.1.183
[10]

Cuicui Li, Lin Zhou, Zhidong Teng, Buyu Wen. The threshold dynamics of a discrete-time echinococcosis transmission model. Discrete & Continuous Dynamical Systems - B, 2021, 26 (10) : 5197-5216. doi: 10.3934/dcdsb.2020339
[11]

Martino Bardi, Shigeaki Koike, Pierpaolo Soravia. Pursuit-evasion games with state constraints: dynamic programming and discrete-time approximations. Discrete & Continuous Dynamical Systems, 2000, 6 (2) : 361-380. doi: 10.3934/dcds.2000.6.361
[12]

Yinghua Dong, Yuebao Wang. Uniform estimates for ruin probabilities in the renewal risk model with upper-tail independent claims and premiums. Journal of Industrial & Management Optimization, 2011, 7 (4) : 849-874. doi: 10.3934/jimo.2011.7.849
[13]

Sie Long Kek, Mohd Ismail Abd Aziz, Kok Lay Teo, Rohanin Ahmad. An iterative algorithm based on model-reality differences for discrete-time nonlinear stochastic optimal control problems. Numerical Algebra, Control & Optimization, 2013, 3 (1) : 109-125. doi: 10.3934/naco.2013.3.109
[14]

Yun Kang. Permanence of a general discrete-time two-species-interaction model with nonlinear per-capita growth rates. Discrete & Continuous Dynamical Systems - B, 2013, 18 (8) : 2123-2142. doi: 10.3934/dcdsb.2013.18.2123
[15]

Agnieszka B. Malinowska, Tatiana Odzijewicz. Optimal control of the discrete-time fractional-order Cucker-Smale model. Discrete & Continuous Dynamical Systems - B, 2018, 23 (1) : 347-357. doi: 10.3934/dcdsb.2018023
[16]

Ferenc A. Bartha, Ábel Garab. Necessary and sufficient condition for the global stability of a delayed discrete-time single neuron model. Journal of Computational Dynamics, 2014, 1 (2) : 213-232. doi: 10.3934/jcd.2014.1.213
[17]

Ka Chun Cheung, Hailiang Yang. Optimal investment-consumption strategy in a discrete-time model with regime switching. Discrete & Continuous Dynamical Systems - B, 2007, 8 (2) : 315-332. doi: 10.3934/dcdsb.2007.8.315
[18]

Deepak Kumar, Ahmad Jazlan, Victor Sreeram, Roberto Togneri. Partial fraction expansion based frequency weighted model reduction for discrete-time systems. Numerical Algebra, Control & Optimization, 2016, 6 (3) : 329-337. doi: 10.3934/naco.2016015
[19]

Sie Long Kek, Kok Lay Teo, Mohd Ismail Abd Aziz. Filtering solution of nonlinear stochastic optimal control problem in discrete-time with model-reality differences. Numerical Algebra, Control & Optimization, 2012, 2 (1) : 207-222. doi: 10.3934/naco.2012.2.207
[20]

John E. Franke, Abdul-Aziz Yakubu. Periodically forced discrete-time SIS epidemic model with disease induced mortality. Mathematical Biosciences & Engineering, 2011, 8 (2) : 385-408. doi: 10.3934/mbe.2011.8.385

2020 Impact Factor: 1.801

Tools

Metrics

  • PDF downloads (263)
  • HTML views (1057)
  • Cited by (0)

Other articles
by authors

[Back to Top]

Copyright © 2021 American Institute of Mathematical Sciences | Privacy Policy