Proposal for Ruin Probability on Premium Pricing using Pareto Distributed Claims on Policies with Benefit Limit

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Ruin Probability on Premium Pricing using Pareto Distributed Claims on Policies with Benefit Limit

Proposal for Ruin Probability on Premium Pricing using Pareto Distributed Claims on Policies with Benefit Limit

© All Rights Reserved

- State Bar of Wisconsin Form 11-2003 LAND CONTRACT (fill in the blanks)
- Pink Form Condition of Contracct
- Berkshire Hathaway 1st Quarter 2005
- Thomas J. Mundy, Jr. v. Lumberman's Mutual Casualty Co., 783 F.2d 21, 1st Cir. (1986)
- 1111dfsd
- Table No 165
- 14-0112
- BANKERS STANDARD INSURANCE COMPANY VS ULTIMATE ONLINE INSTALLATIONS INC. Complaint
- A Presentation on Promotional Startegies With Respect To
- Sun Mutual Insurance Company v. WRIGHT, 64 U.S. 412 (1860)
- Summer Training Report
- Consolidated SIP Report G.rajyaLakshmi 11079
- kaho ek din
- Virginia Mutual Insurance Company and Mill Owners Mutual Insurance Company v. Insurance Company of North America and Indiana Lumbermen's Mutual Insurance Company, 383 F.2d 6, 4th Cir. (1967)
- Family Good Health Terms
- Mediclaim-Insurance (1)
- Atlantic Lines Limited v. American Motorists Insurance Company, 547 F.2d 11, 2d Cir. (1976)
- PETITION
- Fire Que & Ans Book
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Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Distributed Claims on Policies with Benefit Limit

Ayrnand Mitchell B. Kabiri

University of the Philippines Los Baos

December 4, 2014

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

(insurance company) and an insured (policyholder), wherein for a

given amount of premium paid by the insured, the insurer would

provide a benefit to the insured in the time that a loss would occur.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

as a compensation for the benefit he/she might get at the time that

a loss will occur.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

as a compensation for the benefit he/she might get at the time that

a loss will occur.

Loss is the amount of money corresponding to the cost of damage

of a property.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

as a compensation for the benefit he/she might get at the time that

a loss will occur.

Loss is the amount of money corresponding to the cost of damage

of a property. Claims is the total amount of money an insured may

get when he/she incurred a loss.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

insurance industry was that the insurer will fix a premium price and

will provide an initial wealth at the time an insurance policy starts

and the insurance company will not take further actions to make

the business going until the end of the term of the policy. It means

that the insurer will only rely on their initial wealth and the

premiums they have collected to cover for the losses that the

insured will incur at a certain time. If there will be lots of loss

reported, and the total loss is greater than the wealth and

premiums collected at that time, then the insurance company may

become insolvent or ruined.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

financial obligations.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

financial obligations.

Ruin happens when the wealth of the insurance company

becomes less than zero.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

financial obligations.

Ruin happens when the wealth of the insurance company

becomes less than zero.Ruin probability is the probability of an

insurer to be ruined at a certain time.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

financial obligations.

Ruin happens when the wealth of the insurance company

becomes less than zero.Ruin probability is the probability of an

insurer to be ruined at a certain time.

One way of minimizing the ruin probability is by limiting the policy

contracts.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

financial obligations.

Ruin happens when the wealth of the insurance company

becomes less than zero.Ruin probability is the probability of an

insurer to be ruined at a certain time.

One way of minimizing the ruin probability is by limiting the policy

contracts.One of these limits is the Benefit limit. Benefit limit is an

upper boundary on how much an insurance will provide for any

loss.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

using a Pareto distributed claim sizes such that the ruin probability

does not exceed the given level of tolerance.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Ruin Theory

We consider the collective risk process

U (t, ) = + pt S(t)

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Ruin Theory

We consider the collective risk process

U (t, ) = + pt S(t)

where U (t, ) is the insurers surplus at time t, is the initial

N (t)

Xi as the

i =1

ith claim and N (t) as the number of claims on the interval (0, t]

and it follows a poisson process.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Ruin Theory

Suppose that N (t) = t. This assumption will only be valid if we

consider a group insurance and Xi be the total amount of claims

t

Xi where each

i =1

random variable. With this, it follows that

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Ruin Theory

Suppose that N (t) = t. This assumption will only be valid if we

consider a group insurance and Xi be the total amount of claims

t

Xi where each

i =1

random variable. With this, it follows that

t

U ( T, ) = + pt Xi .

i =1

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Definition

The time of ruin is defined as the event when the value of the

surplus is less than zero. Thus, it can be defined as

( ) = inf{t|U ( T, ) < 0}

where ( ) is the time of ruin with initial surplus .

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Definition

Infinite-time ruin probability at time t with initial surplus is given

by

(, T ) = P( ( ) < ).

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Definition

Infinite-time ruin probability at time t with initial surplus is given

by

(, T ) = P( ( ) < ).

Definition

Finite-time ruin probability at time t with initial surplus is given by

(, T ) = P( ( ) < T ).

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Benefit Limit

Definition

Benefit limit is defined as the amount given to the insured if the

loss is greater than the limit. Otherwise, the original claim will be

given to the insured.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Pareto Distribution

Definition

A random variable X is said to follow the Pareto distribution with

parameters > 0 and > 0 if its distribution function F is given by

F(x) =

+x

+x

AM Kabiri

,x 0

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Objectives

This research aims to:

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Objectives

This research aims to:

1

an insurer with a policy contract that includes benefit limit with

Pareto distributed claims.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Objectives

This research aims to:

1

an insurer with a policy contract that includes benefit limit with

Pareto distributed claims.

insurance policy, given the initial capital of the insurer, limit value of

the insurance policy and the ruin probability using the closed-form

expression.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Objectives

This research aims to:

1

an insurer with a policy contract that includes benefit limit with

Pareto distributed claims.

insurance policy, given the initial capital of the insurer, limit value of

the insurance policy and the ruin probability using the closed-form

expression.

Examine the behavior of the policy with benefit limit and the ruin

probability when the premium prices varies.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

The results of this study can be used by insurance companies as a

basis for calculating the premium prices of their insurance policies

with benefit limit. Premium prices can be calculated by setting the

desired ruin probabilities and the limit for the benefit limit.They can

base the calculation of the premium prices on the ruin probability

of their insurance company. Thus, this will be beneficial for insurers

for determining the premium price with a known ruin probability for

any time.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

The paper of Felix, Maranan, and Ruanto [5] calculated the premium

prices of an insurance policy with deductible and with benefit limit using

exponentially distributed claims. They derived a general expression for

computing the premium prices of an insurance policy with deductible and

the general expression for insurance policy with benefit limit. They run a

simulation using a computer program, and observed the behavior of the

premium prices in relation to the ruin probability, deductible, and benefit

limit. They observed that premium prices increases as the ruin probability

decreases and they also observed that premium prices increases as the

deductible decreases or as the limit increases.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

In the paper of Bladt, Nielsen, and Samorodnitsky [2], they calculated the

ruin probabilities with a dense class of heavy tailed distributions. One of

the heavy tailed distributions they used is the Pareto distributions. They

formed an expression for calculating ruin probability with Pareto

distribution. They compared the approximate values they calculated

using their expression to the values of ruin probability found in the paper

of Ramsay. They found out that the approximate results are reasonably

close to the true value. And the largest deviation is found on moderately

large values of initial reserves.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Methodology

To find a closed-form expression that will define the ruin probability

of an insurer with a policy contract that includes benefit limit with

Pareto distributed claims, we will

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Methodology

To find a closed-form expression that will define the ruin probability

of an insurer with a policy contract that includes benefit limit with

Pareto distributed claims, we will

use the finite-time ruin probability

(, T ) = P( ( ) < T ).

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Methodology

To find a closed-form expression that will define the ruin probability

of an insurer with a policy contract that includes benefit limit with

Pareto distributed claims, we will

use the finite-time ruin probability

(, T ) = P( ( ) < T ).

assume that the loss amount is Pareto distributed

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Methodology

To find a closed-form expression that will define the ruin probability

of an insurer with a policy contract that includes benefit limit with

Pareto distributed claims, we will

use the finite-time ruin probability

(, T ) = P( ( ) < T ).

assume that the loss amount is Pareto distributed

construct a density function for the policy with benefit limit

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

To find a closed-form expression that will define the ruin probability

of an insurer with a policy contract that includes benefit limit with

Pareto distributed claims, we will

use the finite-time ruin probability

(, T ) = P( ( ) < T ).

assume that the loss amount is Pareto distributed

construct a density function for the policy with benefit limit

find the ruin probability at times 1,2,3,4, and 5.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

policy with benefit limit using the expression we found in computing

the ruin probability with Pareto distributed losses on policy with

benefit limit.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

policy with benefit limit using the expression we found in computing

the ruin probability with Pareto distributed losses on policy with

benefit limit.

Calculate the premium prices for different ruin probability and

benefit limit using the created scilab program. We will vary the

levels of ruin probabilities and limit.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

policy with benefit limit using the expression we found in computing

the ruin probability with Pareto distributed losses on policy with

benefit limit.

Calculate the premium prices for different ruin probability and

benefit limit using the created scilab program. We will vary the

levels of ruin probabilities and limit.

Examine the behavior of the calculated premium prices with

different levels of ruin probability and benefit limits.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

Preliminaries

Objectives

Methodology

Reference

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

M. Bladt, etal. Calculation of Ruin Probabilities for a Dense Class of

Heavy Tailed Distribution. n.d.

C.Constantinescu, V. M. D., and R. Norberg. Risk process with

dependence and premium adjusted to solvensy targets. European

Actuarial Journal, 2010.

M. Denuit, J. Dhaene, M. Goovaerts, and R. Kaas, Modern Actuarial

Risk Theory , 2nd Edition, Germany. Springer, 2009.

E. F. Felix, S. C. Maranan, and J. J. Ruanto. Ruin probability on

Premium Pricing Using Exponentially Distributed Claims with Policy

Deductible and with Benefit Limit. University of the Philippines Los

Baos. 2013.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

edition, 2007.

AM Kabiri

Statement of the Problem

Preliminaries

Objectives

Significance of the Study

Review of Related Literature

Methodology

Reference

AM Kabiri

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