Related papers: Non-Life Insurance Pricing : Statistical Mechanics…
We consider an economy made of competing firms which are heterogeneous in their capital and use several inputs for producing goods. Their consumption policy is fixed rationally by maximizing a utility and their capital cannot fall below a…
We analyze competition on nonlinear prices in homogeneous goods markets with consumer search. In equilibrium firms offer two-part tariffs consisting of a linear price and lump-sum fee. The equilibrium production is socially efficient as the…
Experience rating in insurance uses a Bayesian credibility model to upgrade the current premiums of a contract by taking into account policyholders' attributes and their claim history. Most data-driven models used for this task are…
We study a large economy in which firms cannot compute exact solutions to the non-linear equations that characterize the equilibrium price at which they can sell future output. Instead, firms use polynomial expansions to approximate prices.…
We develop a probabilistic consumer choice framework based on information asymmetry between consumers and firms. This framework makes it possible to study market competition of several firms by both quality and price of their products. We…
Generalized linear models (GLMs) using a regression procedure to fit relationships between predictor and target variables are widely used in automobile insurance data. Here, in the process of ratemaking and in order to compute the premiums…
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…
Statistical mechanics provides a useful analog for understanding the behavior of complex adaptive systems, including electric power markets and the power systems they intend to govern. Market-based control is founded on the conjecture that…
We consider the problem of estimating the possibly non-convex cost of an agent by observing its interactions with a nonlinear, non-stationary and stochastic environment. For this inverse problem, we give a result that allows to estimate the…
Modern market management systems continue to evolve due to the intentions to improve system security and reliability. This evolvement has been leading to a transition of market auction models from a deterministic structure with…
In this paper we investigate the hedging problem of a unit-linked life insurance contract via the local risk-minimization approach, when the insurer has a restricted information on the market. In particular, we consider an endowment…
In this chapter, an input-output economic model with multiple interactive economic systems is considered. The model captures the multi-dimensional nature of the economic sectors or industries in each economic system, the interdependencies…
In a closed economic system, money is conserved. Thus, by analogy with energy, the equilibrium probability distribution of money must follow the exponential Gibbs law characterized by an effective temperature equal to the average amount of…
It is illustrated a methodology to compute the pure premium for the automobile insurance (claim frequency and severity) using generalized linear models. It is obtained the pure premium for the partial damage loss cover (PPD) using a set of…
We proposed a model of interacting market agents based on the Ising spin model. The agents can take three actions: "buy," "sell," or "stay inactive." We defined a price evolution in terms of the system magnetization. The model reproduces…
This paper proposes a flexible and analytically tractable class of frequency and severity models for predicting insurance claims. The proposed model is able to capture nonlinear relationships in explanatory variables by characterizing the…
We develop a formalism for insurance profit optimisation for the in-force business constraint by regulatory and risk policy related requirements. This approach is applicable to Life, P&C and Reinsurance businesses and applies in all…
This paper discusses the connection between mathematical finance and statistical modelling which turns out to be more than a formal mathematical correspondence. We like to figure out how common results and notions in statistics and their…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We propose a simple statistical-physics-inspired model for the effect of intrinsic fluctuations on supply and demand in markets. The model consists of agents that trade in two types of goods of which the total number is separately…