Matrix-form Recursive Evaluation of the Aggregate Claims Distribution Revisited

Kok Keng Siaw, Xueyuan Wu, David Pitt and Yan Wang

Annals of Actuarial Science, 2011, vol. 5, issue 2, 163-179

Abstract: This paper aims to evaluate the aggregate claims distribution under the collective risk model when the number of claims follows a so-called generalised (a, b, 1) family distribution. The definition of the generalised (a, b, 1) family of distributions is given first, then a simple matrix-form recursion for the compound generalised (a, b, 1) distributions is derived to calculate the aggregate claims distribution with discrete non-negative individual claims. Continuous individual claims are discussed as well and an integral equation of the aggregate claims distribution is developed. Moreover, a recursive formula for calculating the moments of aggregate claims is also obtained in this paper. With the recursive calculation framework being established, members that belong to the generalised (a, b, 1) family are discussed. As an illustration of potential applications of the proposed generalised (a, b, 1) distribution family on modelling insurance claim numbers, two numerical examples are given. The first example illustrates the calculation of the aggregate claims distribution using a matrix-form Poisson for claim frequency with logarithmic claim sizes. The second example is based on real data and illustrates maximum likelihood estimation for a set of distributions in the generalised (a, b, 1) family.

Date: 2011
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