Stable-1/2 bridges and insurance

Edward Hoyle ; Lane P. Hughston ; Andrea Macrina

Banach Center Publications, Tome 104 (2015), p. 95-120 / Harvested from The Polish Digital Mathematics Library

Résumé

We develop a class of non-life reserving models using a stable-1/2 random bridge to simulate the accumulation of paid claims, allowing for an essentially arbitrary choice of a priori distribution for the ultimate loss. Taking an information-based approach to the reserving problem, we derive the process of the conditional distribution of the ultimate loss. The "best-estimate ultimate loss process" is given by the conditional expectation of the ultimate loss. We derive explicit expressions for the best-estimate ultimate loss process, and for expected recoveries arising from aggregate excess-of-loss reinsurance treaties. Use of a deterministic time change allows for the matching of any initial (increasing) development pattern for the paid claims. We show that these methods are well-suited to the modelling of claims where there is a non-trivial probability of catastrophic loss. The generalized inverse-Gaussian (GIG) distribution is shown to be a natural choice for the a priori ultimate loss distribution. For particular GIG parameter choices, the best-estimate ultimate loss process can be written as a rational function of the paid-claims process. We extend the model to include a second paid-claims process, and allow the two processes to be dependent. The results obtained can be applied to the modelling of multiple lines of business or multiple origin years. The multi-dimensional model has the property that the dimensionality of calculations remains low, regardless of the number of paid-claims processes. An algorithm is provided for the simulation of the paid-claims processes.

Détail

Publié le : 2015-01-01

Zbl 1312.60060

EUDML-ID : urn:eudml:doc:282480