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Pricing a Heterogeneous Portfolio Based on a Demand Function

Author

Listed:
  • Yaniv Zaks
  • Esther Frostig
  • Benny Levikson

Abstract

Consider a portfolio containing number of risk classes. Each class has its own demand function, which determines the number of insureds in this class as a function of the premium. The insurer determines the premiums based on the number of insureds in each class. The “market” reacts by updating the number of the policyholders, then the insurer updates the premium, and so on. We show that this process has an equilibrium point, and then we characterize this point.

Suggested Citation

  • Yaniv Zaks & Esther Frostig & Benny Levikson, 2008. "Pricing a Heterogeneous Portfolio Based on a Demand Function," North American Actuarial Journal, Taylor & Francis Journals, vol. 12(1), pages 65-73.
    • Handle: RePEc:taf:uaajxx:v:12:y:2008:i:1:p:65-73
    DOI: 10.1080/10920277.2008.10597500
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