Gamma Mixture Density Networks and their application to modelling insurance claim amounts

Łukasz Delong, Mathias Lindholm and Mario V. Wüthrich

Insurance: Mathematics and Economics, 2021, vol. 101, issue PB, 240-261

Abstract: We discuss how mixtures of Gamma distributions with mixing probabilities, shape and rate parameters depending on features can be fitted with neural networks. We develop two versions of the EM algorithm for fitting so-called Gamma Mixture Density Networks, which we call the EM network boosting algorithm and the EM forward network algorithm, and we test their implementation together with the choices of hyperparameters. A simulation study shows that our algorithms perform very well on synthetic data sets. We further illustrate the application of the Gamma Mixture Density Network on a real data set of motor insurance claim amounts and conclude that Gamma Mixture Density Networks can improve the fit of the regression model and the predictions of the claim severities used for rate-making compared to classical actuarial techniques.

Keywords: Expectation-maximization algorithm; Neural networks; Mixtures of distributions; Regression models; Rate-making (search for similar items in EconPapers)
JEL-codes: C45 G22 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:101:y:2021:i:pb:p:240-261

DOI: 10.1016/j.insmatheco.2021.08.003

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