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Abstract:
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In the context of insurance, a collective risk model has the representation of S = X1 + . . . + XN, where N denotes the claim counts and Xi's represent the claim severity. For most choices of distributions of claim counts and severity, the computation of the distribution function or the corresponding probability (density) function is difficult to obtain. Because of the computational complexity of calculating the distributional values of S, it has been the practice to approximate the distribution. In this paper, we examine a simple, but reasonably accurate approximation method for computing tail probabilities and probability (density) functions of the aggregate claims for specific combinations of frequency and severity distributions.
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