A Class of Conjugate Priors for Log-Normal Claims Based on Conditional Specification |
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| Authors: | José María Sarabia Enrique Castillo Emilio Gómez-Déniz Francisco J Vázquez-Polo |
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| Institution: | JoséMaría Sarabia works with Department of Economics, University of Cantabria, Spain;Enrique Castillo works with Department of Applied Mathematics and Computational Sciences, University of Cantabria, Spain;Emilio Gómez-Désniz and Francisco J. Vázquez-Polo work with Department of Quantitative Methods, University of Las Palmas de Gran Canaria, Spain. The authors can be contacted via e-mail:;;;and . The authors want to thank the referees for suggesting clarifications and improvements. They also thank the MCYT (Ministerio de Ciencia y Tecnología, Spain) for partial funding of this research (authors from Cantabria under project BEC2000–1186, and authors from Canary Islands under project BEC2001–3774). |
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| Abstract: | In this article, a new methodology for obtaining a premium based on a broad class of conjugate prior distributions, assuming lognormal 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. |
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