Isotonic Optimization in Tariff Construction

The problem of the best f it to set ideal values under general inequality order restrictions is examined for asymmetric, quadratic, absolute, and Chebyshev norms. Special solution procedures are given in terms of network flow algorithms over a network associated with the given isotonic order relations, and the nature of the optimal solutions is characterized for the different norms. The model is formulated in terms of finding an optimal insurance r a t e structure over given risk classes for which a desired pattern of tariffs can be specified, The suitability of different norms is considered in the context of corporate profitability, and the relationship to a Temperate relativities model is described. Keywords: Isotonic Regression, Linear Programming, Quadratic Programming Network Flows Approximation Theory Insurance Ratemaking