Optimal Premium Pricing for a Heterogeneous Portfolio of Insurance Risks

Abstract EN

The paper revisits the classical problem of premium rating within a heterogeneous portfolio of insurance risks using a continuous stochastic control framework.

The portfolio is divided into several classes where each class interacts with the others.

The risks are modelled dynamically by the means of a Brownian motion.

This dynamic approach is also transferred to the design of the premium process.

The premium is not constant but equals the drift of the Brownian motion plus a controlled percentage of the respective volatility.

The optimal controller for the premium is obtained using advanced optimization techniques, and it is finally shown that the respective pricing strategy follows a more balanced development compared with the traditional premium approaches.