Gay, Roger The Power Principle and Tail-fatness Uncertainty When insurance claims are governed by fat-tailed distributions, gross uncertainty about the value of the tail-fatness index is virtually inescapable. In this paper a new premium principle (the power principle) analogous to the exponential principle for thin-tailed claims, is discussed. Pareto premiums determined under the principle have a transparent ratio structure, cater convincingly for uncertainty in the tail-fatness index, and are applicable in passage to the extremal limit, to all fat-tailed distributions in the domain of attraction of the (Frechet) extreme-value distribution. Cover can be provided for part claims if existence of the claims mean is in doubt. Stop-loss premiums are also discussed. Mathematical requirements are very modest. Exponential principle;power principle;constant risk aversion;ratio premium;stop-loss insurance;2004;1959.1/2349;monash:2349 2017-11-03
    https://bridges.monash.edu/articles/journal_contribution/The_Power_Principle_and_Tail-fatness_Uncertainty/5566996
10.4225/03/59fbb52b8f94b