Mathematical Methods of Operations Research

, Volume 68, Issue 1, pp 125–158 | Cite as

Optimal time to change premiums

  • Erhan Bayraktar
  • H. Vincent Poor
Original Article


The claim arrival process to an insurance company is modeled by a compound Poisson process whose intensity and/or jump size distribution changes at an unobservable time with a known distribution. It is in the insurance company’s interest to detect the change time as soon as possible in order to re-evaluate a new fair value for premiums to keep its profit level the same. This is equivalent to a problem in which the intensity and the jump size change at the same time but the intensity changes to a random variable with a know distribution. This problem becomes an optimal stopping problem for a Markovian sufficient statistic. Here, a special case of this problem is solved, in which the rate of the arrivals moves up to one of two possible values, and the Markovian sufficient statistic is two-dimensional.


Compound Poisson processes Optimal stopping Detecting the change in the characteristics of the claim arrival process Insurance premiums 


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Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Department of MathematicsUniversity of MichiganAnn ArborUSA
  2. 2.School of Engineering and Applied SciencePrinceton UniversityPrincetonUSA

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