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Price and Profit Optimization for Financial Services

Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain
Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK
Author to whom correspondence should be addressed.
Received: 6 January 2018 / Revised: 30 January 2018 / Accepted: 6 February 2018 / Published: 8 February 2018
PDF [837 KB, uploaded 10 February 2018]


Prospective customers of financial and insurance products can be targeted based on the profit the provider expects to earn from them. We present a model for individual expected profit and two alternatives for calculating optimal personalized prices that maximize the expected profit. For one of these alternatives, we obtain a closed-form expression for the price offered to each prospective customer; for the other, we need to use a numerical approximation. In both approaches, the profits generated by prospective customers are not immediately observed, given that the products sold by these companies have a risk component. We assume that willingness to pay is heterogeneous and apply our methodology using real data from a European insurance company. Our study indicates that a substantial boost in profits can be expected when applying the simplest optimal pricing method proposed. View Full-Text
Keywords: sales optimization; optimal price; price elasticity sales optimization; optimal price; price elasticity

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Bolancé, C.; Guillen, M.; Nielsen, J.P.; Thuring, F. Price and Profit Optimization for Financial Services. Risks 2018, 6, 9.

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