Finance Department

 

Date of this Version

2004

Document Type

Article

Citation

Journal of Actuarial Practice 11 (2004), pp. 197-216

Comments

Copyright 2004 Absalom Press

Abstract

We present a geometric approach to studying greatest accuracy credibility theory. Our main tool is the concept of orthogonal projections. We show, for example, that to determine the Buhlmann credibility premium is to find the coefficients of the minimum-norm vector in an affine space spanned by certain orthogonal random variables. Our approach is illustrated by deriving various common credibility formulas. Several equivalent forms of the credibility factor Z are derived by means of similar triangles.

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