Your assumptions are correct--adjust the duty cycle so that the average current is below the maximum average forward current to not exceed the diode's specs. You should also make sure the peak surge current is not exceeded.
The exact definition for the Maximum Average Forward Current IF(AV) and Non-Repetitive Forward Surge Current IFSM will depend on the manufacturer. Look for an application note from the diode manufacturer.
Advanced Power Technology has a good application note explaining the datasheet parameters in detail for their products. It has this to say about IF(AV) and IFSM:
IF(AV) is the maximum allowable average forward current
when the case temperature is maintained at a specified value between
25ºC and 75ºC below the maximum allowable junction temperature.
...
Obviously it has to be an average of something, and, in the APT diode
data sheets, the basis for the average is a train of square pulses
with 50% duty cycle. In such a train of pulses, the average current is
half of the peak current. Therefore, a 15 A rating implies a train of
square, 30 A pulses with a 50% duty cycle. Historically, the basis
for the average was a train of half sine wave pulses such as would be
the output of a half-wave bridge. In other words, the time between the
pulses was equal to the duration of the pulses. Because fast power
diodes are called on today to handle square or trapezoidal pulses, the
basis for the average is no longer the train of half-sine wave pulses.
...
IFSMis the maximum allowable nonrepetitive half-sine wave
surge current under the following conditions: TJ = 45°C and the
base-width of the half-sine wave surge pulse is 8.3 ms. A sample of
diodes is selected and one-by-one the diodes are tested to
destruction. This is done by hitting the DUT with a single surge pulse
and checking to see whether the diode was destroyed. If so, the peak
value of the surge is recorded as that diode’s pulse-height
capability, and the next diode is tested. If not, the junction
temperature is allowed to return to 45°C, the peak value of the surge
is increased, and the DUT is hit again. This process is repeated until
all of the diodes in the sample have been destroyed. Then the
pulse-height capabilities are averaged and IFSM is set equal to half
of the average.
Source: http://www.ohm.com.tr/doc/Microsemi---Defining-Diode-Data-Sheet-Parameters.pdf