IDEAS home Printed from https://ideas.repec.org/a/eee/insuma/v49y2011i3p325-334.html
   My bibliography  Save this article

Estimating the distortion parameter of the proportional-hazard premium for heavy-tailed losses

Author

Listed:
  • Brahimi, Brahim
  • Meraghni, Djamel
  • Necir, Abdelhakim
  • Zitikis, Ričardas

Abstract

The distortion parameter reflects the amount of loading in insurance premiums. A specific value of a given premium determines a value of the distortion parameter, which depends on the underlying loss distribution. Estimating the parameter, therefore, becomes a statistical inferential problem, which has been initiated by Jones and Zitikis [Jones, B.L., Zitikis, R., 2007. Risk measures, distortion parameters, and their empirical estimation. Insurance: Mathematics and Economics, 41, 279–297] in the case of the distortion premium and tackled within the framework of the central limit theorem. Heavy-tailed losses do not fall into this framework as they rely on the extreme-value theory. In this paper, we concentrate on a special but important distortion premium, called the proportional-hazard premium, and propose an estimator for its distortion parameter in the case of heavy-tailed losses. We derive an asymptotic distribution of the estimator, construct a practically implementable confidence interval for the distortion parameter, and illustrate the performance of the interval in a simulation study.

Suggested Citation

  • Brahimi, Brahim & Meraghni, Djamel & Necir, Abdelhakim & Zitikis, Ričardas, 2011. "Estimating the distortion parameter of the proportional-hazard premium for heavy-tailed losses," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 325-334.
    • Handle: RePEc:eee:insuma:v:49:y:2011:i:3:p:325-334
    DOI: 10.1016/j.insmatheco.2011.05.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016766871100059X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.insmatheco.2011.05.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Danielsson, J. & de Haan, L. & Peng, L. & de Vries, C. G., 2001. "Using a Bootstrap Method to Choose the Sample Fraction in Tail Index Estimation," Journal of Multivariate Analysis, Elsevier, vol. 76(2), pages 226-248, February.
    2. Necir, Abdelhakim & Meraghni, Djamel, 2009. "Empirical estimation of the proportional hazard premium for heavy-tailed claim amounts," Insurance: Mathematics and Economics, Elsevier, vol. 45(1), pages 49-58, August.
    3. Bruce Jones & Ričardas Zitikis, 2003. "Empirical Estimation of Risk Measures and Related Quantities," North American Actuarial Journal, Taylor & Francis Journals, vol. 7(4), pages 44-54.
    4. Dekkers, A. L. M. & Dehaan, L., 1993. "Optimal Choice of Sample Fraction in Extreme-Value Estimation," Journal of Multivariate Analysis, Elsevier, vol. 47(2), pages 173-195, November.
    5. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    6. Furman, Edward & Zitikis, Ricardas, 2008. "Weighted premium calculation principles," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 459-465, February.
    7. Wang, Shaun, 1996. "Premium Calculation by Transforming the Layer Premium Density," ASTIN Bulletin, Cambridge University Press, vol. 26(1), pages 71-92, May.
    8. Jones, Bruce L. & Zitikis, Ricardas, 2007. "Risk measures, distortion parameters, and their empirical estimation," Insurance: Mathematics and Economics, Elsevier, vol. 41(2), pages 279-297, September.
    9. Neves, Claudia & Fraga Alves, M. I., 2004. "Reiss and Thomas' automatic selection of the number of extremes," Computational Statistics & Data Analysis, Elsevier, vol. 47(4), pages 689-704, November.
    10. Peng, Liang, 2001. "Estimating the mean of a heavy tailed distribution," Statistics & Probability Letters, Elsevier, vol. 52(3), pages 255-264, April.
    11. Drees, Holger & Kaufmann, Edgar, 1998. "Selecting the optimal sample fraction in univariate extreme value estimation," Stochastic Processes and their Applications, Elsevier, vol. 75(2), pages 149-172, July.
    12. Lynn Wirch, Julia & Hardy, Mary R., 1999. "A synthesis of risk measures for capital adequacy," Insurance: Mathematics and Economics, Elsevier, vol. 25(3), pages 337-347, December.
    13. Vandewalle, B. & Beirlant, J., 2006. "On univariate extreme value statistics and the estimation of reinsurance premiums," Insurance: Mathematics and Economics, Elsevier, vol. 38(3), pages 441-459, June.
    14. Beirlant, J. & Matthys, G. & Dierckx, G., 2001. "Heavy-Tailed Distributions and Rating," ASTIN Bulletin, Cambridge University Press, vol. 31(1), pages 37-58, May.
    15. Furman, Edward & Zitikis, Ricardas, 2008. "Weighted risk capital allocations," Insurance: Mathematics and Economics, Elsevier, vol. 43(2), pages 263-269, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Goovaerts, Marc & Linders, Daniël & Van Weert, Koen & Tank, Fatih, 2012. "On the interplay between distortion, mean value and Haezendonck–Goovaerts risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 51(1), pages 10-18.
    2. Brahimi, Brahim & Abdelli, Jihane, 2016. "Estimating the distortion parameter of the proportional hazards premium for heavy-tailed losses under Lévy-stable regime," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 135-143.
    3. Vasiliy A. Anikin & Yulia P. Lezhnina & Svetlana V. Mareeva & Ekaterina D. Slobodenyuk & Nataliya N. Tikhonovà, 2016. "Income Stratification: Key Approaches and Their Application to Russia," HSE Working papers WP BRP 02/PSP/2016, National Research University Higher School of Economics.
    4. Nadezhda Gribkova & Ričardas Zitikis, 2019. "Weighted allocations, their concomitant-based estimators, and asymptotics," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 71(4), pages 811-835, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Necir, Abdelhakim & Meraghni, Djamel, 2009. "Empirical estimation of the proportional hazard premium for heavy-tailed claim amounts," Insurance: Mathematics and Economics, Elsevier, vol. 45(1), pages 49-58, August.
    2. Nadezhda Gribkova & Ričardas Zitikis, 2019. "Weighted allocations, their concomitant-based estimators, and asymptotics," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 71(4), pages 811-835, August.
    3. Brahimi, Brahim & Abdelli, Jihane, 2016. "Estimating the distortion parameter of the proportional hazards premium for heavy-tailed losses under Lévy-stable regime," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 135-143.
    4. Rassoul, Abdelaziz, 2013. "Kernel-type estimator of the conditional tail expectation for a heavy-tailed distribution," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 698-703.
    5. Peng, Liang & Qi, Yongcheng & Wang, Ruodu & Yang, Jingping, 2012. "Jackknife empirical likelihood method for some risk measures and related quantities," Insurance: Mathematics and Economics, Elsevier, vol. 51(1), pages 142-150.
    6. Psarrakos, Georgios & Toomaj, Abdolsaeed & Vliora, Polyxeni, 2024. "A family of variability measures based on the cumulative residual entropy and distortion functions," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 212-222.
    7. Benkhelifa, Lazhar, 2014. "Kernel-type estimator of the reinsurance premium for heavy-tailed loss distributions," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 65-70.
    8. Francesca Greselin & Ričardas Zitikis, 2018. "From the Classical Gini Index of Income Inequality to a New Zenga-Type Relative Measure of Risk: A Modeller’s Perspective," Econometrics, MDPI, vol. 6(1), pages 1-20, January.
    9. Furman, Edward & Landsman, Zinoviy, 2010. "Multivariate Tweedie distributions and some related capital-at-risk analyses," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 351-361, April.
    10. Liu, Qing & Peng, Liang & Wang, Xing, 2017. "Haezendonck–Goovaerts risk measure with a heavy tailed loss," Insurance: Mathematics and Economics, Elsevier, vol. 76(C), pages 28-47.
    11. Greselin, Francesca & Zitikis, Ricardas, 2015. "Measuring economic inequality and risk: a unifying approach based on personal gambles, societal preferences and references," MPRA Paper 65892, University Library of Munich, Germany.
    12. Choo, Weihao & de Jong, Piet, 2009. "Loss reserving using loss aversion functions," Insurance: Mathematics and Economics, Elsevier, vol. 45(2), pages 271-277, October.
    13. Labopin-Richard T. & Gamboa F. & Garivier A. & Iooss B., 2016. "Bregman superquantiles. Estimation methods and applications," Dependence Modeling, De Gruyter, vol. 4(1), pages 1-33, March.
    14. Furman, Edward & Hackmann, Daniel & Kuznetsov, Alexey, 2020. "On log-normal convolutions: An analytical–numerical method with applications to economic capital determination," Insurance: Mathematics and Economics, Elsevier, vol. 90(C), pages 120-134.
    15. El Methni, Jonathan & Stupfler, Gilles, 2018. "Improved estimators of extreme Wang distortion risk measures for very heavy-tailed distributions," Econometrics and Statistics, Elsevier, vol. 6(C), pages 129-148.
    16. Henryk Zähle, 2011. "Rates of almost sure convergence of plug-in estimates for distortion risk measures," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 74(2), pages 267-285, September.
    17. Djamel Meraghni & Abdelhakim Necir, 2007. "Estimating the Scale Parameter of a Lévy-stable Distribution via the Extreme Value Approach," Methodology and Computing in Applied Probability, Springer, vol. 9(4), pages 557-572, December.
    18. Wozabal, Nancy, 2009. "Uniform limit theorems for functions of order statistics," Statistics & Probability Letters, Elsevier, vol. 79(12), pages 1450-1455, June.
    19. Neves, Claudia & Fraga Alves, M. I., 2004. "Reiss and Thomas' automatic selection of the number of extremes," Computational Statistics & Data Analysis, Elsevier, vol. 47(4), pages 689-704, November.
    20. Deme, El Hadji & Girard, Stéphane & Guillou, Armelle, 2013. "Reduced-bias estimator of the Proportional Hazard Premium for heavy-tailed distributions," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 550-559.

    More about this item

    Keywords

    Proportional-hazard premium; Proportional-hazard transform; Distortion risk measure; Distortion parameter; Extreme value; Heavy tail; Risk aversion index;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:49:y:2011:i:3:p:325-334. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505554 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.