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Using quantile regression for rate-making

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  • Kudryavtsev, Andrey A.
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    Abstract

    Regression models are popular tools for rate-making in the framework of heterogeneous insurance portfolios; however, the traditional regression methods have some disadvantages particularly their sensitivity to the assumptions which significantly restrict the area of their applications. This paper is devoted to an alternative approach-quantile regression. It is free of some disadvantages of the traditional models. The quality of estimators for the approach described is approximately the same as or sometimes better than that for the traditional regression methods. Moreover, the quantile regression is consistent with the idea of using the distribution quantile for rate-making. This paper provides detailed comparisons between the approaches and it gives the practical example of using the new methodology.

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    File URL: http://www.sciencedirect.com/science/article/B6V8N-4WXHBPX-2/2/55522c9fc0fb204b89d026771a47de50
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    Bibliographic Info

    Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

    Volume (Year): 45 (2009)
    Issue (Month): 2 (October)
    Pages: 296-304

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    Handle: RePEc:eee:insuma:v:45:y:2009:i:2:p:296-304

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    Web page: http://www.elsevier.com/locate/inca/505554

    Related research

    Keywords: IB42 IM30 Regression models Generalized linear models Quantile regression Confidence band Rate-making Quantile approach to the net premium rate-making;

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    References

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    1. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    2. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521608275, December.
    3. de Jong,Piet & Heller,Gillian Z., 2008. "Generalized Linear Models for Insurance Data," Cambridge Books, Cambridge University Press, number 9780521879149, December.
    4. Robert F. Engle & Simone Manganelli, 1999. "CAViaR: Conditional Value at Risk by Quantile Regression," NBER Working Papers 7341, National Bureau of Economic Research, Inc.
    5. Rousseeuw, P. & Daniels, B. & Leroy, A., 1984. "Applying robust regression to insurance," Insurance: Mathematics and Economics, Elsevier, vol. 3(1), pages 67-72, January.
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    Cited by:
    1. Pitselis, Georgios, 2013. "Quantile credibility models," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 477-489.

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