October 2014
Intermediate to advanced
584 pages
22h 2m
English
Content preview from Pricing in General Insurance
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299From Costing to Pricing
conversion rate will be proportional to the demand curve. Krikler et al. (2004) calls this the
‘demand probability’.
Because the conversion rate will be a number between 0 and 1, monotonically decreasing
in price (at least typically), the demand function is often approximated as a logit function:
logit( )ln
shift
scale
DP
DP
DP
P
()
()
()
=
−
=−
−
1
(19.8)
or, solving with respect to D(P),
DP
P
()=
+
−
1
1exp
shift
scale
(19.9)
As an example, the illustrative demand function of Figure 19.9 has been obtained by
imposing shift = £150, scale = £18. In practice, the logit will only be a rough approxima-
tion of the demand function. Fo ...
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