Building Loss Models
This paper is intended as a guide to building insurance risk (loss) models. A typical model for insurance risk, the so-called collective risk model, treats the aggregate loss as having a compound distribution with two main components: one characterizing the arrival of claims and another describing the severity (or size) of loss resulting from the occurrence of a claim. In this paper we first present efficient simulation algorithms for several classes of claim arrival processes. Then we review a collection of loss distributions and present methods that can be used to assess the goodness-of-fit of the claim size distribution. The collective risk model is often used in health insurance and in general insurance, whenever the main risk components are the number of insurance claims and the amount of the claims. It can also be used for modeling other non-insurance product risks, such as credit and operational risk.
|Date of creation:||Sep 2010|
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2004,01, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
- Anna Chernobai & Krzysztof Burnecki & Svetlozar Rachev & Stefan Trück & Rafał Weron, 2006. "Modelling catastrophe claims with left-truncated severity distributions," Computational Statistics, Springer, vol. 21(3), pages 537-555, December.
- Wolfgang Karl HÃ¤rdle & Yuichi Mori & JÃ¼rgen Symanzik, 2012. "Computational Statistics (Journal)," SFB 649 Discussion Papers SFB649DP2012-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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