publication . Article . 2012

Reversible Jump Markov Chain Monte Carlo Method for Parameter Reduction in Claims Reserving

Verrall, R. J.; Wüthrich, M. V.;
Open Access
  • Published: 26 Nov 2012 Journal: North American Actuarial Journal, volume 16, pages 240-259 (issn: 1092-0277, eissn: 2325-0453, Copyright policy)
  • Publisher: Informa UK Limited
  • Country: United Kingdom
Abstract
We present an application of the reversible jump Markov chain Monte Carlo (RJMCMC) method to the important problem of setting claims reserves in general insurance business for the outstanding loss liabilities. A measure of the uncertainty in these claims reserves estimates is also needed for solvency purposes. The RJMCMC method described in this paper represents an improvement over the manual processes often employed in practice. In particular, our RJMCMC method describes parameter reduction and tail factor estimation in the claims reserving process, and, moreover, it provides the full predictive distribution of the outstanding loss liabilities.
Subjects
free text keywords: Statistics, Probability and Uncertainty, Economics and Econometrics, Statistics and Probability, General insurance, Solvency, Economics, Econometrics, Parameter reduction, Reversible-jump Markov chain Monte Carlo, HG
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