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On The Pricing Of Top And Drop Excess Of Loss Covers, Jean-Francois Walhin, Michel Denuit
On The Pricing Of Top And Drop Excess Of Loss Covers, Jean-Francois Walhin, Michel Denuit
Journal of Actuarial Practice (1993-2006)
A top and drop cover is a treaty that can be found on the retrocession market. It offers capacity that can be used either to protect a top layer or a working layer. The former is called a "top" and the latter is called a "drop." Using the traditional collective risk model, we demonstrate the use of a multivariate version of Panjer's algorithm to price this cover. We also compare the premium obtained within the exact model with the premiums obtained either with the Frechet bounds or with the wrong assumption of independence.