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Modelling Dependence in Insurance Claims Processes with Lévy Copulas

Published online by Cambridge University Press:  09 August 2013

Benjamin Avanzi ,
Luke C. Cassar  and
Bernard Wong
Benjamin Avanzi
Affiliation:
School of Risk and Actuarial Studies, Australian School of Business, University of New South Wales, Sydney NSW 2052, Australia, E-mail: b.avanzi@unsw.edu.au
Luke C. Cassar
Affiliation:
School of Risk and Actuarial Studies, Australian School of Business, University of New South Wales, Sydney NSW 2052, Australia, E-mail: luke.c.cassar@gmail.com
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Abstract

In this paper we investigate the potential of Lévy copulas as a tool for modelling dependence between compound Poisson processes and their applications in insurance. We analyse characteristics regarding the dependence in frequency and dependence in severity allowed by various Lévy copula models. Through the introduction of new Lévy copulas and comparison with the Clayton Lévy copula, we show that Lévy copulas allow for a great range of dependence structures.

Procedures for analysing the fit of Lévy copula models are illustrated by fitting a number of Lévy copulas to a set of real data from Swiss workers compensation insurance. How to assess the fit of these models with respect to the dependence structure exhibited by the dataset is also discussed.

Finally, we provide a decomposition of the trivariate compound Poisson process and discuss how trivariate Lévy copulas model dependence in this multivariate setting.

Keywords

Lévy copulaDependenceCompound Poisson processInsuranceReal data
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 41 , Issue 2 , November 2011 , pp. 575 - 609
Copyright
Copyright © International Actuarial Association 2011

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