Identifying Appropriate Frequency Distributions
Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) lesson in Severity, Frequency, and Aggregate Models. 7 min read, ~1,032 words.
Variance-to-mean = 1: Poisson. < 1: Binomial. 1: Negative binomial. Overdispersion is common: heterogeneous populations inflate variance beyond Poisson. Both heterogeneity and contagion produce overdispersion. The ratio cannot distinguish them. Zero-inflation: excess zeros → zero-modified or zero-inflated model (a,b,1). Truncated data distorts the ratio: ZT Poisson has apparent ratio <...
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