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

Escobar DD & Pflug G ORCID: https://orcid.org/0000-0001-8215-3550 (2020). The distortion principle for insurance pricing: properties, identification and robustness. Annals of Operations Research 292: 771-794. DOI:10.1007/s10479-018-3119-1.

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Abstract

Distortion (Denneberg in ASTIN Bull 20(2):181–190, 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 as well as robustness w.r.t. ambiguity of the loss distribution. Ambiguity is measured by the Wasserstein distance. We study variances of distances for probability models and identify some worst case distributions. In addition to the direct problem we also investigate the inverse problem, that is how to identify the distortion density on the basis of observations of insurance premia.

Item Type: Article
Uncontrolled Keywords: Ambiguity; Distortion premium; Dual representation; Premium principles; Risk measures; Wasserstein distance
Research Programs: Risk & Resilience (RISK)
Depositing User: Luke Kirwan
Date Deposited: 07 Jan 2019 09:03
Last Modified: 24 Aug 2020 08:55
URI: http://pure.iiasa.ac.at/15659

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