October 2014
Intermediate to advanced
584 pages
22h 2m
English
Content preview from Pricing in General Insurance
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389Pricing Considerations for Specic Lines of Business
23.3.1 Data Requirements
To price a portfolio of loans, we need:
a. Current exposure information
b. Historical losses (if available) and
c. Information on the wider economic context
The information in (b) may not be used directly for pricing but serves as a sanity check
and helps understand the mechanism by which defaults happen for the portfolio under
consideration and how loss amounts are related to the size of the loan.
It should be stressed, as done by McNeil et al. (2005), that ‘data problems are the main
obstacle to the reliable calibration of credit models’. This is because the big difculty in this
type of exercise is calibrating the model with the correct probabilities of defa ...
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