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Linear Goal Programming and experience rating

Heras Martínez, Antonio and Vilar Zanón, José Luis and Gil Fana, José Antonio and García Pineda, María Pilar (2001) Linear Goal Programming and experience rating. [Working Paper or Technical Report]

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Official URL: http://eprints.ucm.es/6739/

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Abstract

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.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Programación lineal, Goal Programming, Simplexmethod, Bonus-malus system, Bayes scale, Rating error, Bayesian decision.
Subjects:UNSPECIFIED
Series Name:Documentos de Trabajo de la Facultad de Ciencias Económicas y Empresariales
Volume:2001
Number:17
ID Code:6739
Deposited On:30 Nov 2007
Last Modified:06 Feb 2014 07:50

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