| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5076505 | Insurance: Mathematics and Economics | 2015 | 9 Pages |
Abstract
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.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Weihao Choo, Piet de Jong,