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Premium Calculation: Why Standard Deviation Should be Replaced by Absolute Deviation1

Published online by Cambridge University Press:  29 August 2014

Dieter Denneberg
Dieter Denneberg*
Affiliation:
Bremen, FRG
*
FB Mathematik/Informatik, Universität Bremen, D-2800 Bremen 33.
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Abstract

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Average absolute (instead of quadratic) deviation from median (instead of expectation) is better suited to determine the safety loading for insurance premiums than standard deviation: The corresponding premium functionals behave additive under the practically relevant risk sharing schemes between first insurer and reinsurer.

Keywords

Premium principlesaverage absolute deviationcomonotonic additivitydistorted probabilities

Information

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 20 , Issue 2 , November 1990 , pp. 181 - 190
Copyright
Copyright © International Actuarial Association 1990

Footnotes

1

Lecture, given under the title “Quantilsabhängige Prämienprinzipien” at 21. Tagung der ASTIN-Gruppe in der DGVM, October 13th, 1989, Stuttgart.

References

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