Exam FAM · Severity, Frequency, and Aggregate Models · Free Lesson

Recognizing (a,b,0) and (a,b,1) Distributions

Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) lesson in Severity, Frequency, and Aggregate Models. 10 min read, ~1,530 words.

A recursion ratio is . Is this Poisson? Negative binomial? Logarithmic? Recognizing which distribution you have (and how it relates to its zero-truncated siblings) separates a 30-second solution from a 5-minute grind.

Poisson(): , . Recursion ratio , decreasing.

Binomial(): , . Support , finite.

Negative binomial(): , . Infinite support. Tail decays geometrically.

Geometric(): NB with . . Constant recursion ratio .

KEY: Geometric is negative binomial with , giving . The recursion ratio is constant at for all , if the ratio does not change with , you have geometric.

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Exam shortcut

Build a decision tree. First: mass at zero? No → (a,b,1). Second: ? Yes → logarithmic. No → ZT or ZM version. Third: sign of identifies the underlying family. Three steps, under 15 seconds. "Logarithmic = a plus b equals zero." Drill as reflex. "ZT = divide by 1 minus p-naught." One formula covers all four ZT versions. "The sign tells the story."

The full lesson (about 1,530 words, 10 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.

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