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Consistent loss prediction for a portfolio and its subportfolios

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  • Sebastian Fuchs

Abstract

In the present paper, we consider a portfolio of risks consisting of two subportfolios, and we study the problem of whether or not the predictors based on the subportfolios are consistent with those based on the full portfolio. We study this aggregation problem for both the chain-ladder method and the additive method (or incremental loss ratio method). In the case of the chain-ladder method we extend results of Ajne and Klemmt, using the duality of the chain-ladder method applied to incremental losses; we also give a short proof for this duality, which was first observed by Barnett, Zehnwirth & Dubossarky. In the case of the additive method the aggregation problem has not been studied before and its solution is surprisingly simple.

Suggested Citation

  • Sebastian Fuchs, 2014. "Consistent loss prediction for a portfolio and its subportfolios," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2014(6), pages 561-581.
    • Handle: RePEc:taf:sactxx:v:2014:y:2014:i:6:p:561-581
    DOI: 10.1080/03461238.2012.749508
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