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Chain-Ladder as Maximum Likelihood Revisited

Author

Listed:
  • D. Kuang

    (Aon, 8 Devonshire Square, London)

  • B. Nielsen

    (Nuffield College, Oxford.)

  • J. P. Nielsen

    (Cass Business School, City University London.)

Abstract

It has long been known that maximum likelihood estimation in a Poisson model reproduces the chain-ladder technique. We revisit this model. A new canonical parametrisation is proposed to circumvent the inherent identification problem in the parametrisation. The maximum likelihood estimators for the canonical parameter are simple, interpretable and easy to derive. The boundary problem where all observations in one particular development year or on particular underwriting year is zero is also analysed.

Suggested Citation

  • D. Kuang & B. Nielsen & J. P. Nielsen, 2009. "Chain-Ladder as Maximum Likelihood Revisited," Economics Papers 2009-W08, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:0908
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    Cited by:

    1. Di Kuang & Bent Nielsen & Jens Perch Nielsen, 2011. "Forecasting in an Extended Chain‐Ladder‐Type Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 345-359, 06.

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