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Building loss models

In: Statistical Tools for Finance and Insurance

Author

Listed:
  • Krzysztof Burnecki

    (Wrocław University of Technology, Hugo Steinhaus Center for Stochastic Methods)

  • Joanna Janczura

    (Wrocław University of Technology, Hugo Steinhaus Center for Stochastic Methods)

  • Rafał Weron

    (Wrocław University of Technology, Institute of Organization and Management)

Abstract

A loss model or actuarial risk model is a parsimonious mathematical description of the behavior of a collection of risks constituting an insurance portfolio. It is not intended to replace sound actuarial judgment. In fact, according to Willmot (2001), a well formulated model is consistent with and adds to intuition, but cannot and should not replace experience and insight. Moreover, a properly constructed loss model should reflect a balance between simplicity and conformity to the data since overly complex models may be too complicated to be useful.

Suggested Citation

  • Krzysztof Burnecki & Joanna Janczura & Rafał Weron, 2011. "Building loss models," Springer Books, in: Pavel Cizek & Wolfgang Karl Härdle & Rafał Weron (ed.), Statistical Tools for Finance and Insurance, chapter 9, pages 293-328, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-18062-0_9
    DOI: 10.1007/978-3-642-18062-0_9
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    1. is not listed on IDEAS
    2. repec:hum:wpaper:sfb649dp2010-056 is not listed on IDEAS
    3. repec:hum:wpaper:sfb649dp2010-061 is not listed on IDEAS
    4. Adam Misiorek & Rafal Weron, 2010. "Heavy-tailed distributions in VaR calculations," HSC Research Reports HSC/10/05, Hugo Steinhaus Center, Wroclaw University of Science and Technology.
    5. repec:hum:wpaper:sfb649dp2010-059 is not listed on IDEAS
    6. Ma, Zong-Gang & Ma, Chao-Qun, 2013. "Pricing catastrophe risk bonds: A mixed approximation method," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 243-254.
    7. Joanna Janczura & Sebastian Orzel & Agnieszka Wylomanska, 2011. "Subordinated alpha-stable Ornstein-Uhlenbeck process as a tool for financial data description," HSC Research Reports HSC/11/03, Hugo Steinhaus Center, Wroclaw University of Science and Technology.
    8. Gajda, Janusz & Bartnicki, Grzegorz & Burnecki, Krzysztof, 2018. "Modeling of water usage by means of ARFIMA–GARCH processes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 644-657.
    9. repec:hum:wpaper:sfb649dp2010-055 is not listed on IDEAS
    10. Burnecki, Krzysztof & Gajda, Janusz & Sikora, Grzegorz, 2011. "Stability and lack of memory of the returns of the Hang Seng index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(18), pages 3136-3146.
    11. Denis-Alexandre Trottier & Van Son Lai & Anne-Sophie Charest, 2017. "CAT Bond Spreads Via HARA Utility and Nonparametric Tests," Working Papers 2017-002, Department of Research, Ipag Business School.
    12. Magdalena Weglarz & Agnieszka Wylomanska, 2010. "Optimal bidding strategies on the power market based on the stochastic models," HSC Research Reports HSC/10/06, Hugo Steinhaus Center, Wroclaw University of Science and Technology.
    13. repec:hum:wpaper:sfb649dp2010-054 is not listed on IDEAS
    14. Janczura, Joanna & Orzeł, Sebastian & Wyłomańska, Agnieszka, 2011. "Subordinated α-stable Ornstein–Uhlenbeck process as a tool for financial data description," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4379-4387.
    15. repec:hum:wpaper:sfb649dp2010-051 is not listed on IDEAS
    16. repec:hum:wpaper:sfb649dp2010-050 is not listed on IDEAS
    17. repec:hum:wpaper:sfb649dp2010-049 is not listed on IDEAS

    More about this item

    Keywords

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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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