Pricing unemployment insurance using burr xii mixture distributions and C.A.P.M with application to USA data

Abstract

The objective of this research is to consider varying unemployment duration in the pricing of unemployment insurance with application to USA data. The study assumes that unemployment duration follows Burr XII mixture distribution while the discount rate to use in the pricing of the scheme will be determined by fitting market data into the capital asset pricing model. The Burr XII mixture distribution has been used to model unemployment duration in order to allow for heterogeneity in the unemployment duration of the covered employees. The program will be administered by the government to cover her working citizenry so that in the event of an involuntarily job loss, one may receive unemployment benefits to help them pay their recurrence bills before they secure another job.The results yield a mean unemployment duration of approximately 16 weeks and premium contribution rate of 5.10% of the taxable wage base per month for a benefit of 45% of the taxable wage base per month, payable on weekly basis during spells of unemployment.