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Optimal Bonus Scales Under Path-Dependent Bonus Rules

Author

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  • Maria de Lourdes Centeno
  • João Manuel Andrade Silva

Abstract

Bonus malus systems have been studied by several authors under the framework of Markov chains. Optimal scales have been deduced by Norberg (1976), Borgan, Hoem & Norberg (1981) and Gilde & Sundt (1989). In these articles the authors assumed that the bonus system forms a first order Markov chain. In the present paper we deduce the optimal scales, using the same criteria as in the cited papers, for bonus systems that are not first order Markovian processes, but that can be regarded as Markovian by increasing the number of states of the system.

Suggested Citation

  • Maria de Lourdes Centeno & João Manuel Andrade Silva, 2002. "Optimal Bonus Scales Under Path-Dependent Bonus Rules," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2002(2), pages 129-136.
    • Handle: RePEc:taf:sactxx:v:2002:y:2002:i:2:p:129-136
    DOI: 10.1080/03461230110106264
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