2022
DOI: 10.2478/puma-2022-0023
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On monotone likelihood ratio of stationary probabilities in bonus-malus systems

Abstract: Bonus-malus system is an often used risk management tool in the insurance industry, and it is usually modeled with Markov chains. Under mild conditions it can be stated that the bonus-malus system converges to a unique stationary distribution in the long run. The maximum likelihood ratio property is a well-known statistical concept and we define it for the stationary distribution of a bonus-malus system. For two special cases we could justify it algebraically. For other cases we describe a numerical method wit… Show more

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