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BAYESIAN CHAIN LADDER MODELS

Published online by Cambridge University Press:  17 October 2014

Greg Taylor
Greg Taylor*
Affiliation:
School of Risk and Actuarial Studies, UNSW Business School, UNSW Australia, Level 6, West Lobby, UNSW Business School Building E12, UNSW Sydney 2052, Australia Tel.: +61 421 338 448, Fax: +61 2 9869 4805
*
E-Mail: gregory.taylor@unsw.edu.au
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Abstract

The literature on Bayesian chain ladder models is surveyed. Both Mack and cross-classified forms of the chain ladder are considered. Both cases are examined in the context of error terms distributed according to a member of the exponential dispersion family. Tweedie and over-dispersed Poisson errors follow as special cases. Bayesian cross-classified chain ladder models may randomise row, column or diagonal parameters. Column and diagonal randomisation has been largely absent from the literature until recently. The present paper allows randomisation of row and column parameters. The Bayes estimator, the linear Bayes (credibility) estimator, and the MAP estimator are shown to be identical in the Mack case, and in the cross-classified case provided that the error terms are Tweedie distributed. In the Mack case the variance structure is generalised considerably from the existing literature. In the cross-classified case the model structure differs somewhat from the existing literature, and a comparison is made between the two. MAP estimators for the cross-classified case are often given by implicit equations that require numerical solution. Recursive formulas are given for these in the general case of error terms from the exponential dispersion family. The connection between the cross-classified case and Bornhuetter-Ferguson prediction is explored.

Keywords

Bayesian chain ladderBornhuetter-Fergusonchain laddercolumn effectsexponential dispersion familyMack modelcross-classified modelover-dispersed Poissonrow effectsTweedie family
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 45 , Issue 1 , January 2015 , pp. 75 - 99
Copyright
Copyright © ASTIN Bulletin 2014 

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