A Class of Conjugate Priors for Log-Normal Claims Based on Conditional Specification

17 Pages Posted: 31 Aug 2005

See all articles by José María Sarabia

José María Sarabia

University of Cantabria - Department of Economics

Enrique Castillo

University of Cantabria - Department of Applied Mathematics and Computational Sciences

Emilio Gomez Deniz

University of Las Palmas de Gran Canaria - Department of Quantitative Methods in Economics

Francisco J. Vázquez-Polo

University of Las Palmas de Gran Canaria - Department of Quantitative Methods in Economics

Abstract

In this article, a new methodology for obtaining a premium based on a broad class of conjugate prior distributions, assuming log-normal claims, is presented. The new class of prior distributions arise in a natural way, using the conditional specification technique introduced by Arnold, Castillo, and Sarabia (1998, 1999). The new family of prior distributions is very flexible and contains, as particular cases, many other distributions proposed in the literature. Together with its flexibility, the main advantage of this distribution is that, due to its dependence on a large number of hyperparameters, it allows incorporating a wide amount of prior information. Several methods for hyperparameter elicitation are proposed. Finally, some examples with real and simulated data are given.

Suggested Citation

Sarabia, José María and Castillo, Enrique and Gomez Deniz, Emilio and Vázquez-Polo, Francisco J., A Class of Conjugate Priors for Log-Normal Claims Based on Conditional Specification. Journal of Risk and Insurance, Vol. 72, No. 3, pp. 479-495, September 2005, Available at SSRN: https://ssrn.com/abstract=782999

José María Sarabia (Contact Author)

University of Cantabria - Department of Economics ( email )

Av. Los Castros s/n
39005 - Santander (Cantabria), Cantabria 39005
Spain

Enrique Castillo

University of Cantabria - Department of Applied Mathematics and Computational Sciences ( email )

Avda. Los Castros, s/n
39005 - Santander (Cantabria)
Spain

Emilio Gomez Deniz

University of Las Palmas de Gran Canaria - Department of Quantitative Methods in Economics ( email )

Campus de Tafira
35017 Las Palmas
Spain

Francisco J. Vázquez-Polo

University of Las Palmas de Gran Canaria - Department of Quantitative Methods in Economics ( email )

Campus de Tafira
35017 Las Palmas
Spain

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