Bonus-Malus System Using Finite Mixture Models
AbstractThere is a vast literature on Bonus-Malus System (BMS), in which a policyholders responsible for positive claims will be penalised by a malus and the policyholders who had no claim will be rewarded by a bonus. In this paper, we present an optimal BMS using finite mixture models. We conduct a numerical study to compare the new model with the current BMS that use finite mixture models.
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