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Prediction error in the chain ladder method

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  • Wüthrich, Mario V.

Abstract

We define a chain ladder model which allows for the study of three different error types: (a) diversifiable process error, (b) non-diversifiable process error, and (c) parameter estimation error. The model is based on the classical stochastic chain ladder model introduced by Mack [Mack, T., 1993. Distribution-free calculation of the standard error of chain ladder reserve estimates. Astin Bull. 23(2), 213-225]. In order to clearly distinguish the different sources of prediction uncertainty, we have to slightly modify that classical chain ladder model.

Suggested Citation

  • Wüthrich, Mario V., 2008. "Prediction error in the chain ladder method," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 378-388, February.
    • Handle: RePEc:eee:insuma:v:42:y:2008:i:1:p:378-388
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    References listed on IDEAS

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    1. Buchwalder, Markus & Bühlmann, Hans & Merz, Michael & Wüthrich, Mario V., 2006. "The Mean Square Error of Prediction in the Chain Ladder Reserving Method (Mack and Murphy Revisited)," ASTIN Bulletin, Cambridge University Press, vol. 36(2), pages 521-542, November.
    2. Venter, Gary G., 2006. "Discussion of the Mean Square Error of Prediction in the Chain Ladder Reserving Method," ASTIN Bulletin, Cambridge University Press, vol. 36(2), pages 566-571, November.
    3. Mack, Thomas, 1993. "Distribution-free Calculation of the Standard Error of Chain Ladder Reserve Estimates," ASTIN Bulletin, Cambridge University Press, vol. 23(2), pages 213-225, November.
    4. Gisler, Alois, 2006. "The Estimation Error in the Chain-Ladder Reserving Method: A Bayesian Approach," ASTIN Bulletin, Cambridge University Press, vol. 36(2), pages 554-565, November.
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