A maximum-entropy approach to the linear credibility formula
AbstractPayandeh [Payandeh Najafabadi, A.T., 2010. A new approach to credibility formula. Insurance: Mathematics and Economy 46, 334–338] introduced a new technique to approximate a Bayes’ estimator with the exact credibility’s form. This article employs a well known and powerful maximum-entropy method (MEM) to extend results of Payandeh Najafabadi (2010) to a class of linear credibility, whenever claim sizes have been distributed according to the logconcave distributions. Namely, (i) it employs the maximum-entropy method to approximate an appropriate Bayes’ estimator (with respect to either the square-error or the Linex loss functions and general increasing and bounded prior distribution) by a linear combination of claim sizes; (ii) it establishes that such an approximation coincides with the exact credibility formula whenever the require conditions for the exact credibility (see below) are held. Some properties of such an approximation are discussed. Application to crop insurance has been given.
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Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 51 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505554
Linear credibility formula; Bayes’ estimator; Mean square-error technique; Maximum-entropy technique; Panel data; Time series data; Crop insurance;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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