Auto-balanced common shock claim models

Greg Taylor; Phuong Anh Vu

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arXiv · 2112.14715

Auto-balanced common shock claim models

Greg Taylor·Phuong Anh Vu

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Abstract

The paper is concerned with common shock models of claim triangles. These are usually constructed as a linear combinations of shock components and idiosyncratic components. Previous literature has discussed the unbalanced property of such models, whereby the shocks may over- or under-contribute to some observations. The literature has also introduced corrections for this. The present paper discusses 'auto-balanced' models, in which all shock and idiosyncratic components contribute to observations such that their proportionate contributions are constant from one observation to another. The conditions for auto-balance are found to be simple and applicable to a wide range of model structures. Numerical illustrations are given.

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Greg Taylor, Phuong Anh Vu. 2021-12-24. Auto-balanced common shock claim models. https://arxiv.org/abs/2112.14715

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