On copula-based collective risk models: from elliptical copulas to vine copulas

Rosy Oh, Jae Youn Ahn, Woojoo Lee

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Several collective risk models have recently been proposed by relaxing the widely used but controversial assumption of independence between claim frequency and severity. Approaches include the bivariate copula model, random effect model, and two-part frequency-severity model. This study focuses on the copula approach to develop collective risk models that allow a flexible dependence structure for frequency and severity. We first revisit the bivariate copula method for frequency and average severity. After examining the inherent difficulties of the bivariate copula model, we alternatively propose modeling the dependence of frequency and individual severities using multivariate Gaussian and t-copula functions. We also explain how to generalize those copulas in the format of a vine copula. The proposed copula models have computational advantages and provide intuitive interpretations for the dependence structure. Our analytical findings are illustrated by analyzing automobile insurance data.

Original languageEnglish
Pages (from-to)1-33
Number of pages33
JournalScandinavian Actuarial Journal
Volume2021
Issue number1
DOIs
StatePublished - 2021

Keywords

  • Collective risk model
  • Gaussian copula
  • copula
  • frequency-severity dependence
  • vine copula

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