Finance Department

 

Date of this Version

2006

Document Type

Article

Citation

Journal of Actuarial Practice 13 (2006), pp. 175-190

Comments

Copyright 2006 Absalom Press

Abstract

This paper explores two tail-based premium calculation principles, the tail standard deviation (TSD) premium and the tail conditional expectation (TCE) premium, in their risk-adjusted and unadjusted forms. They are risk-adjusted using so-called distortion functions. We prove that the proportional hazard (PH) risk-adjusted TCE premium is larger than the unadjusted TCE premium. Additionally, given a risk distribution with location and scale parameters, we prove that the PH risk-adjusted TCE premium reduces to the unadjusted TSD premium.

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