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, ~1,569 words.

A recursion ratio is 0.3+0.6/k 0.3 + 0.6/k . 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.

Recognize each counting family from its recursion coefficients. Their relationships become clearer when you check whether zero truncation or zero modification changes only the probability at zero or the positive probabilities as well.

Poisson(λ \lambda ): a=0 a = 0 , b=λ b = \lambda . Recursion ratio λ/k \lambda/k , decreasing.

Binomial(m,q m, q ): a=−q/(1−q) a = -q/(1-q) , b=(m+1)q/(1−q) b = (m+1)q/(1-q) . Support {0,…,m} \{0, \ldots, m\} , finite.

Negative binomial(r,β r, \beta ): a=β/(1+β) a = \beta/(1+\beta) , b=(r−1)β/(1+β) b = (r-1)\beta/(1+\beta) . Infinite support. Tail decays geometrically.

Geometric(β \beta ): NB with r=1 r = 1 . b=0 b = 0 . Constant recursion ratio a a .

KEY: Geometric is negative binomial with r=1 r = 1 , giving b=0 b = 0 . The recursion ratio is constant at a a for all k k , if the ratio does not change with k k , you have geometric.

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For an (a,b,1) model, check the zero probability and the recursion from count 2 onward. With positive a, a plus b equal to zero indicates logarithmic positive-count probabilities; a negative sum permits extended truncated negative binomial. Use the supplied zero mass to distinguish truncation from modification. "Logarithmic = a plus b equals zero." Drill as reflex. "ZT = divide by 1 minus p-naught." One formula covers all four ZT versions.

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