Mahler's Ratemaking - Optimal Accident Year Weights

HFSActuaryHFSActuary
in Mahler.Credibility

Hi, I am having trouble solving for the optimal accident year weights in the Battle Quiz for Mahler: "You have the two most recent loss ratios for a line of insurance and want to combine them to calculate a rate level indication. Assume there are three years between the latest year of data and the average date of loss under the proposed rates."

image.png

I think that N = 2, Delta = 3 and that Z1 + Z2 = 1, but how do I solve for Lamda?

Comments

  • adminadmin

    You are correct with N = 2, Delta = 3 and Z1 + Z2 = 1. To solve for Lambda you need to write out the Lagrange multiplier equations. Try applying the solution found in the linked PDF below to this problem then let me know if you're still stuck.

    https://www.battleacts8.ca/8/pdf/Mahler_Rating.pdf

  • HFSActuaryHFSActuary

    Thank you! My mistake was that I didn't use the Z1 + Z2 = 1 substitution immediately after setting up the Lagrange multiplier equations.

Sign In or Register to comment.