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Modeling total expenditure on warranty claims

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  • Abhimanyu Mitra
  • Sidney I. Resnick

Abstract

We approximate the distribution of total expenditure of a retail company over warranty claims incurred in a fixed period [0, T], say the following quarter. We consider two kinds of warranty policies, namely, the non-renewing free replacement warranty policy and the non-renewing pro-rata warranty policy. Our approximation holds under modest assumptions on the distribution of the sales process of the warranted item and the nature of arrivals of warranty claims. We propose a method of using historical data to statistically estimate the parameters of the approximate distribution. Our methodology is applied to the warranty claims data from a large car manufacturer for a single car model and model year.

Suggested Citation

  • Abhimanyu Mitra & Sidney I. Resnick, 2010. "Modeling total expenditure on warranty claims," Papers 1008.1032, arXiv.org.
  • Handle: RePEc:arx:papers:1008.1032
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    File URL: http://arxiv.org/pdf/1008.1032
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    1. Fausto Gozzi & Tiziano Vargiolu, 2002. "Superreplication of European multiasset derivatives with bounded stochastic volatility," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 55(1), pages 69-91, March.
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