A Markov chain Monte Carlo approach to estimate the risks of extremely large insurance claims
Document Type
Journal Article
Publication Date
2007
Keywords
Studies, Pareto optimum, Monte Carlo simulation, Insurance claims, Probability distribution
Abstract
The Pareto distribution is a heavy-tailed distribution often used in actuarial models. It is important for modeling losses in insurance claims, especially when we used it to calculate the probability of an extreme event. Traditionally, maximum likelihood is used for parameter estimation, and we use the estimated parameters to calculate the tail probability Pr(X > c) where c is a large value. In this paper, we propose a Bayesian method to calculate the probability of this event. Markov Chain Monte Carlo techniques are employed to calculate the Pareto parameters.
Source Publication
International Journal of Business and Economics
Volume Number
6
Issue Number
3
ISSN
1607-0704
First Page
225
Last Page
236
Recommended Citation
Pang, W.,Hou, S.,Troutt, M.,Yu, W.,& Li, W. (2007). A Markov chain Monte Carlo approach to estimate the risks of extremely large insurance claims. International Journal of Business and Economics, 6 (3), 225-236. Retrieved from https://repository.vtc.edu.hk/ive-it-sp/15