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Document Details :
Title: On Changing the Parameter of Exponential Smoothing in Experience Rating
Author(s): BONSDORFF, Heikki
Journal: ASTIN Bulletin
Volume: 20 Issue: 2 Date: November 1990
We consider exponential smoothing Yn = αXn+(l-α)Yn-1, 0 < ? < 1, in experience rating. Here the premium Yα is determined by the policy's own claims history (Xn). In order to uniformize the fluctuation of premiums, it is appropriate to use a bigger 0t for the big policies than for the small ones. When the size of the policy changes with time, a need arises to change ct correspondingly. It has recently been shown that changing based on the size of the premiums Y, may lead to too low a tariff level. This result is presented here and illustrated by means of simulation. Further, some general results are given how the changing can be made without a decline in the tariff level. The results are applied to a tariff system in which the linking of the smoothing parameter to the size of the policy is particularly motivated.