Comments (0) Credibility theory often utilizes the following basic formula to calculate a credibility-weighted estimate:
Estimate = Z * [Mean of current observation] + (1-Z) * [Prior mean],
where 0<=Z<=1.
Z is the credibility ascribed to the mean of the current observation. The prior mean may be based on prior observed data or some type of benchmark. The question is – how do we determine Z?
Three approaches are commonly used:
As actuaries, we are quite familiar with the rigorous use of double dots and bars in mathematical symbols and equations, and we often use software packages that facilitate their rendering in electronic documents. However, it is sometimes tempting to ignore such diacritical marks when using foreign words or names in English. This is particularly true for electronic documents — I see the tilde and circumflex on the keyboard, but how do I put it over the letter?
Of course, computer keyboard settings can be adjusted to accommodate non-English characters, and certain font settings also display as some of these characters. But as a shortcut, it is useful to know that many of these characters can be produced by simply using the ALT key and a four digit code on the number keypad in the course of your normal typing. For example, you need ALT-0252 to properly type “the Bühlmann credibility factor approaches one asymptotically”, and ALT-0244 for “Itô’s Lemma is used in the derivation of the Black-Scholes option pricing formula”.
You can find reference materials and other codes with an internet search on “diacriticals” or “international symbols”. But be warned — those with a certain musical affinity and/or blatant disregard for the appropriate use of diacriticals may find some combinations difficult. For example, in spite of our best efforts, we have been unable to code the dotless i or umlaut n as parodied in the movie “This is Spinal Tap”, which is troubling. Then again, in the immortal words of the great David St. Hubbins, “It’s such a fine line between stupid and clever”.
Credibility Theory is a branch of actuarial science that attempts to determine the extent to which data can be trusted to inform estimates of the future. While the concept of credibility is often associated with casualty actuaries, it is relevant to virtually all fields of actuarial endeavor. The academic literature on this subject is extensive, and includes several different approaches with a range of mathematical sophistication.
Poetry is foundational to the history of RCL/RIA, so in celebration of our new website we have penned the following haiku:
behold! new website
RCL wisdom profound…
clients’ contentment
