Linear goal and experience rating
- Gil Fana, José Antonio
- García, Pilar
- Heras Martínez, Antonio José
- Vilar, José Luis
ISSN: 2255-5471
Año de publicación: 2001
Número: 17
Tipo: Documento de Trabajo
Otras publicaciones en: Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales
Resumen
This paper is devoted to the explanation of a new methodology in bonus malus system design, capable of taking into account very well known theoretical conditions like fairness and …nancial equilibrium of the portfolio, in addition to market conditions that could …t the resulting scale of premiums into competitive commercial settings. This is done through the resolution of a classical Bayesian decision problem, by means of minimization of the absolute error instead of the classical quadratic error. It is at this stage that we apply Goal Programming methods, which are linear thanks to the equivalence between the minimization of the absolute error and the minimization of the sum of some deviation variables which have a natural interpretation as rating errors. We show in an example how does the new methodology work. All the linear programs have been solved using the simplex method.