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Pricing insurance premia: a top down approach

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  • Eymen Errais

    (University of Tunis, Tunis Business School)

Abstract

Insurance plays an important economic and social role through its ability to transfer risk. In this paper, we focus on the largest insurance sector, the automobile sector. We model automobile insurance premia through a top down approach. Our approach is appealing since it defines the dynamics of the aggregate loss in a consistent way, and also provides a coherent definition of the joint distribution of the total losses and the car insurance premium. We show how to make this top down approach computationally tractable by using the class of affine point processes, which are intensity-based jump processes driven by affine jump diffusions. An affine point process is sufficiently flexible to account for both country global infrastructure and driving behaviour. Further it allows for efficient computation and calibration of a large class of insurance products.

Suggested Citation

  • Eymen Errais, 2022. "Pricing insurance premia: a top down approach," Annals of Operations Research, Springer, vol. 313(2), pages 899-914, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-019-03459-w
    DOI: 10.1007/s10479-019-03459-w
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    References listed on IDEAS

    as
    1. Giesecke, Kay & Schwenkler, Gustavo, 2018. "Filtered likelihood for point processes," Journal of Econometrics, Elsevier, vol. 204(1), pages 33-53.
    2. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
    3. Xiaowei Zhang & Jose Blanchet & Kay Giesecke & Peter W. Glynn, 2015. "Affine Point Processes: Approximation and Efficient Simulation," Mathematics of Operations Research, INFORMS, vol. 40(4), pages 797-819, October.
    4. Noureddine Benlagha & Imen Karaa, 2017. "Evidence of adverse selection in automobile insurance market: A seemingly unrelated probit modelling," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1330303-133, January.
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    More about this item

    Keywords

    Insurance; Car accidents; Stochastic modeling; Self exciting processes;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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