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Abstract
Risk measures based on distorted probabilities have been recently developed in actuarial science and applied to insurance rate making. We propose a risk measure that has the properties of risk aversion and diversification, is additive for losses and consistent in its treatment of insurance and investment risks. We show that the risk measure based on distorted probabilities is not consistent in its ordering of insurance and investment risks.
Volume
29
Page
103-115
Number
1
Year
2001
Keywords
risk measure; Distortion function; Premium principles; Diversification
Categories
New Risk Measures
Publications
Insurance: Mathematics and Economics