Part5-Notes-431-2011-F

# Part5-Notes-431-2011-F - Review Notes for Loss Models 1...

This preview shows pages 1–2. Sign up to view the full content.

Review Notes for Loss Models 1 - ACTSC 431/831, FALL 2011 Part 5 – Aggregate Loss Models Roughly speaking, an aggregate loss model is used to describe the total loss of an insur- ance portfolio in a ﬁxed time period. 1. Individual Risk Model: There are n policyholders in an insurance portfolio. Assume that policyholder i will produce a loss/claim of X i , i = 1 , 2 ,...,n. Then, the total or aggregate loss of the insurance is S n = X 1 + ··· + X n . Such an aggregate loss model is called the individual risk model. A common example of the individual risk model is that X i = B i I i , where I i = 1 , policyholder i makes claims , 0 , otherwise , and B i > 0 is the total amount of claims by policyholder i if it makes claims, i = 1 ,...,n. Thus, S n = B 1 I 1 + ··· + B n I n . 2. Collective Risk Model: The number of claims in an insurance portfolio is a counting random variable N . The amount of the i th claim is X i , i = 1 , 2 ,... . Then the aggregate loss/claim of the insurance is S = X 1 + ··· + X N with S = 0 if N = 0. Such an aggregate loss model is called the collective risk model. Note that unless stated otherwise, in a collective risk model, we assume that N,X 1 ,X 2 ,... are independent and

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 02/08/2012 for the course ACTSC 431 taught by Professor Laundriualt during the Fall '09 term at Waterloo.

### Page1 / 4

Part5-Notes-431-2011-F - Review Notes for Loss Models 1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online