Exam C formula

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Exam C formula

© All Rights Reserved

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5]

Basic Probability Pr[ > ] Pr[ + 0.5]

Policy Limits

Probability Functions

() = () = Pr( ) Bayes Theorem

() = 1 () = Pr( ) = ()

() ()

() = =

() ()

() = = Law of Total Probability

()

() = () = () Deductibles

Payment per Loss

Moments

[] = [ [|]] Payment per Payment

Variances

3 3 32 +2 3

Variance of the Sample Mean

Skewness: 1 = =

3 3

4 4 43 +62 2 34

Kurtosis: 2 = =

4 4

Mean Excess Loss

2]

1 2

[ = () = [( )+ | > ]

Bernoulli Shortcut Special Cases

Percentiles

Mode

Aggregate Loss Franchise Deductible

=+

1

Finding a, b

For Poisson: [] = [ 2 ] Franchise: Y L , Y P [ ] = [ ] + ()

Set = + = 1, { L P {

1

Frailty Model Ordinary: X , X [ ] = [ ] +

Mode = greatest integer that < k Bonus

(|) = () ,

Moment Generating Function ( )+ = {

(|) = () 0, >

,

( ) = {

(|) = ( |) = () = 0, >

Probability Generating Function [] = [( )+ ] = [ ( )]

S() = [(|)] = [ () ] = [()]

= [ ]

Calculate Variance: Use 2nd and 1st moments: Loss Elimination Ratio

2] 2

[] = [ []

= Pr( = )

! Pr[ = ] Pr[ 0.5 + 0.5]

Pr[ ] Pr[ + 0.5]

Pr[ < ] Pr[ < 0.5]

Severity: Coverage Modifications EMPIRICAL MODELS

Review of Mathematical Statistics

Modification

[()]

Empirical Distribution for Complete Data [()] =

()2

1

=

Log-transformed CI of S(t)

= [()1/ ; () ]

= [() ; ()1/ ]

Aggregate Loss Models Variance of Empirical Estimators with = [ . ; .1/ ]

Complete Data ()

()

()

Risk Measures ()

LinearConfident Interval

#()

Calculate () base on Kernel Smoothing

() = ()

Density and Distribution Functions

Kaplan-Meier and Nelson-Aalen Estimators

1

() = (1 ) , 1 <

=1

Nelson-Aalen Estimator

1

TVaR p : Coherent (4 properties)

() = ,

1 <

VaR p : Not Subadditive

=1

E[X]: Not Translation

For Incomplete group, individual Uniform Kernel

Var[X]: only Translation

[X]: Not Monotonic = #{ } + #{ } #{ }

TVaR p TVaR p for Pareto Variance of Kaplan-Meier and Nelson-Aalen

Known ; VaR p VaR p = Estimators

1

TVaR p TVaR p = + =

1 1 Triangular Kernel

Tail Weight Measures

Moments of Kernel-smoothed Distributions Right truncated: there is no info on data more =

2

(): []

than u

2

data points is/are more than u. (limit). =

(): []

Left truncated Right censored:

o Not right censored: f(x)/S(d) ( + 2) 2

=

(): []

o Rightcensored: S(u)/S(d)

Left truncated Right truncated: Delta Method

o f(x)/[S(d)-S(u)] or f(x)/[F(d)-F(u)]

One variable

Left censored Right truncated:

Mortality Table Construction 2

o Not Left censored: f(x)/F(u) (()) ()( ())

:

o Left censored: F(d)/F(u)

Two variables

Left censored Right censored

o Not Left/Right censored: f(x) 2 2

((, )) () ( ) + () ( )

o Left censored: F(d)

o Right censored: S(u)

+ 2(, )

Individual Data

Fitting Discrete Distributions

Two methods to fit data to an (a, b, 0) class

distributions:

Method 1: Compare 2 to .

Method 2: Calculate ( ) for the first

1

Grouped Data

PARAMETRIC MODELS few values of k and observe the slopeof the

( ) (1 ) line created from these values

Method of Moments

Grouped data between d and cj and left- Method 1 Method 2

To fit a k-parameter distribution, set: truncated below at d: [( ) ()]/() Poisson 2 = = 0, =

1 Binomial 2 < <0

[ ]

= for = 1,2, , MLE=MOM Neg.Binomial 2 > > 0, 0

=1

Poissons Geometric 2 > = /((1 + ),

Percentile Matching Binomials ( is known) Geometric =0

Smoothed Empirical Percentile Negative binomials ( is known) =+

Gammas ( is known) Exponential 1

= [( + 1)] observation

Normals and Poisson individual; ~Gamma(, )

If ( + 1) is not an integer, interpolation

between the order statistics before and after the MLE shortcut . ( = ; = )

[( + 1)] observation Neg. Binomial Frequency (; );

Likelihood function has this form: Exponential()

Percentile Matching with Incomplete Data () = / ( = ) +

With censored data, select percentiles within The estimated: ( = (1 + )

the range of the uncensored observations;

= Truncated & Zero Modified Distribution

With truncated data, match the percentiles

of the conditional distribution. 1

Variance of Maximum Likelihood Estimators =

(Asymtotic Variance of Parametric) 1 0

Maximum Likelihood

Fishers Information (Inf. Associated w MLE) 1 0

Steps to Calculating MLE = = (1 0 )

1 0

1. () = () One variable

2. () = ln () () = [ ()] Sum Distribution

3. Set () = 0 () = [()] 1 Sum n indpt Neg. Binomial (same )

4. Solve for

Two variables ~. ( ; )

Likelihoods

Sum n indpt Binomial (same )

Left truncated: there is no info on data less

~ ( ; )

than d (deductible)

Left censored: we only known that some data Sum n Normal ~ (, 2 )

points is/are less than d. Covariance matrix of the = 1 (1 , 2 ) ~(, 2 )

Hypothesis Tests CREDIBILITY Posterior density = (|1 , , )

()(1 , , |)

() = 1 ()/() Limited Fluctuation Credibility =

(1 , , )

Reject: Test Statistic > Critical Value Full Credibility

Predictive density = (+1 |1 , , )

Basic premise: Pr(| []| [])

D(x) Plots Where R = frequency, severity, or aggregate loss = (+1 |). (|1 , , )

() = () () N = frequency

= (+1 |). (|1 , , )

p-p Plots X =severity

#obs

Plots empirical distribution, ( ) = , on 1+ Bayesian credibility estimate of +1 =

+1

x-axis and fitted distribution on y-axis. 1+ = 1 ( ) Mean of predictive distribution =

2 2

E[+1 |1 , , ]

Kolmogorov-Smirnov Test

Number of claims needed for Full Credibility

Test statistic, = [ ]; where: Loss Functions

of

= [| ( ) ( )|, | ( ) ( )|] Number of (1+)/2 2 2

claims = [ ] ( )

Only for individual data.

Lower critical value if < Claim size (1+)/2 2 2

= [ ] ( 2)

If parameters are fitted, critical value

should be lowered. Aggregate (1+)/2 2 2 2

Larger sample size has lower critical value. losses = [ ] ( + 2)

Uniform weight on all parts of distribution

Chi-square Test 2 1 2 2 Conjugate Priors

= ( + )

2 2 2 2 Predictive mean = Posterior Mean

( ) 2

Test statistic, = = If frequency is Poisson, then = 2 Predictive Mean=Buhlmann estimate

=1 =1

Number of exposures (expected claims) needed Poisson/Gamma

If r parameters are estimated using the same

for full credibility:

data used to calculate the test statistic, then

there are 1 degrees of freedom.

=

May be used for individual data or group

data Partial Credibility

Normal/Normal

No adjustments on critical value if < = + (1 ) = + ( )

If parameters are fitted, critical value is

automatically adjusted. = Number of claims observed

Critical value is independent of sample size. / , <

Higher weight on intervals with low fitted ={

1,

probability. = Number of exposures observed

Likelihood Ratio Test Bernoulli/Beta

/ , <

={

Test statistic = 2(1 0 ) 1,

Degrees of freedom Bayesian Estimation and Credibility

= # free parameters in alternate

Posterior: revised prob for Parameter, given

# free parameters in null

Data k - # of success.

Critical value from Chi-square distribution.

Predictive: Prob of Next Claim, given Data. Exponential/Inverse Gamma

Schwarz Bayesian Criterion and Akaike

Density

Information Criterion

Prior density = ()

SBC = ln ln Conditional density = (|)

2

Unconditional density = (1 , , )

AIC = ln

= (). (1 , , |)

n = number of data points

r = number of parameters in model = (). (1 , , |)

Choose model with highest penalized value.

Buhlmann Credibility Estimating

= ()

= [[|]]

= ()

= [[|]]

= () Applications

= [[|]] + = () =

(1 ) + = ( . )

= , = =

+ +

SIMULATION

= + (1 ) = + ( )

Inverse Method

Note: is the denominator of the term used to

= 1 ( )

calculate

Empirical Bayes Non-Parametric Methods Special Techiniques

Multiple Decrements Bootstrap Approximation

r(i): of groups

1

n(j): of years

~Binomial ( = , = )

mij : of PH each years/group 1 1

=1

=1

1. Cal xij

Simulating (a, b, 0) Class Distributions

2. Cal xi

(Stochastic Simulation)

3. Cal

DISTRIBUTION

mij (xij xi )

4. Cal v =

(years 1)each groups (, )

mi (xi )2 v(group 1)

5. Cal a = () =

m m1 m2i ( + )+1

mi

6. Cal Zi =

mi + k () = 1 ( )

+

Uniform Exposures

Simulating Poisson Variable, the rate at which

[] =

the next event occurs is The mean amount 1

of time until the next event occurs is 1/. 2 2

[ 2 ] =

The time until the next variable is exponential ( 1)( 2)

with mean 1/.

!

[ ] =

Normal Random Variables: The Polar ( 1) ( )

Method 2

[] =

( 1)2 ( 2)

Non-Uniform Exposures

[( )+ ] =

( 1)( + )1

+

[( )+ ] = () =

( 1)

1

Number of Data Values to Generate ( ) = [1 ( ) ] ( 1)

1 +

Empirical Bayes Semi-Parametric Methods ( ) = ( ) ( = 1)

+

Estimating

1

= 1 ( )

+

= [(1 )1/ 1]

(1 )1/

= + () = ( = , ) =

1

Mode = 0 / () = ()

() =

2 2 /2

[, ]: [ ] = +

() = 1 /

= + (, )~( + , )

=1 ( + ) +

=1 ( + ) [] = () =

() = +

[ 2 ] = 2 2

~ (, ) ( )

( )| > ~( + , ) [ ] = ! () = [].

1

[] = 2 Y~Normal (, )

~ (, ) { X~Lognormal(, )

() = ln(1 ) X = eY

1

= ln (1 + ) ~ ( = ) +

() = ln(1 ) + 1

( ) = ( ) = []

() = + ( ) = (1 / )

=1 ( + ) +

=1 ( + )

=1

= 1 /

(, ) 1

+

Mode=0 () = ( ) 2 = []

() = ( > ) + =1

+1 1

() = ( )

(, )

=1

() = 1 ( ) ( > )

() () = +

( )

[] = / () = +

1 () = 1

2 2

1 2 /2

[ 2 ] = () = / ( ) =

( 2) 2

[] = () =

[ ] = (, )

( ) [ ] = (1 ) ( < 1)

1

2 () = (ln )1 () =

[] =

( 1)2 ( 2) Mode = /2

() =

[( )+ ] = () 1

() =

( ) =1 1/ +

[] =

= { 1 (, ) 2

( ) +

( ) ( )2

1 (/) / 1 / [] =

() = = 12

() ()

[( ) ] = ( ) 3

3

( ) ( ) () = (, /) [ 2 ] =

3( )

1 [] =

= 1 1 ( > 1, ) () = ( ) =

] (

[ = + 1)

[, ]:

[] = 2 :

= + Mode = ( 1) : .

=1 ( ) +

=1 [(, )]

~ (, ) (, ) 2

() =

(/) / ( + 2)( + 1)2

( )~(, )

() =

() (, , ) ( = = )

() =

+

=1 ( ) +

=1 [(, )] () = 1 (, /) ( + )

() = ( ) [1 /]1

[] = /( 1) ()()

(, )

(, )

1 [] =

() = 2 /2 +

( + )+1

() = 2

2 [] =

() = ( ) ( + )2 ( + + 1)

+

If a=1:

[] = [(1 )1/ 1]1/ () ~ . =

() = ( < )

1+

(, , )

() = =

=1 ( ) (/) (1 + )+1

() = 1

[1 + (/) ]+1

( ) = 0 =

1+

=1 ( ) (/)

() =

(, ) (1 + (/) )

= ; =0

1+

(/) [] = [1/ 1]1/

(/)

() = [] =

(, , )

[] = (1 + )

() = 1 (/) +

[] = [] = [1 ( 1)]1

[ ] = (1 + /) 1

(, )

[] = [(1 )]1/ [] =

(1 )2 ( + 1) ( + 1)

+ + 1/

1 =

() = [ ( )] () ! (1 + )+

1

=1 =1 0 =

= (1 + )

(, ) !

( 1)

(/) (/)

0 = = ; =

() = 1+ 1+

[] = [] =

(/)

[] =

() = 1 [] = (z1)

[] = (1 + )

[ ] = (1 /) (, )

[] = [1 ( 1)]

[] = [()]1/ = (1

)

(, , )

0 = (1 )

(/) ( + 1)

() = = ; =

[1 + (/) ]+1 1 1

() = 1 [1 + (/) ] [] =

[ ] = (1 /) [] = (1 )

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