The tradeoff insurance premium as a two-sided generalisation of the distortion premium

This paper introduces and analyzes the “tradeoff premium”, generalising the loss aversion reserve, distortion premium, spectral risk, and their duals. The tradeoff premium is a weighted average loss where weights increase as loss outcomes deviate from a subjective “loss appetite”, rather than from zero. The U-shaped weights replicate subjective probability adjustment in cumulative prospect theory, and minimise pricing error in a competitive market where overpricing and underpricing are both undesired.