Loss Data Analysis

5Some traditional approaches to the aggregation problem

5.1General remarks

In Chapters 2 and 3 we considered some standard models for the two basic building blocks for modeling the compound random variables used to model risk. First, we considered several instances of integer valued random variables used to model the frequency of events, then some of the positive continuous random variables used to model individual losses or damage each time a risk event occurs.

From these we obtain the first level of risk aggregation, which consists of defining the compound random variables that model loss. Higher levels of loss aggregation are then obtained by summing the simple compound losses.

As we mentioned in the previous chapter, the first stage of aggregation ...