Risk parameter under EBCT model 1

[Kunjesh Parikh]

Explain : The risk parameter, (theta) , is a real number for the normal/normal model but
could be a more general quantity for EBCT Model 1.
What does it imply, when it says that the risk parameter can be a more general quantity for EBCT model 1? Mathematically, more general quantity than a real number is a complex quantity. So, does it intends to say that the risk parameter under the EBCT model can be a complex number too!?

 

[John Lee]

Explain : The risk parameter, (theta) , is a real number for the normal/normal model but
could be a more general quantity for EBCT Model 1.
What does it imply, when it says that the risk parameter can be a more general quantity for EBCT model 1? Mathematically, more general quantity than a real number is a complex quantity. So, does it intends to say that the risk parameter under the EBCT model can be a complex number too!?

I think it's saying that it's a distribution rather than a particular value.

 

[Kunjesh Parikh]

But, even for the normal/normal model which is a bayesian approach to credipbility premium formula, we assume a normal prior distribution for the risk parameter. So, even there it is a distribution rather than a particular value.

 

[John Lee]

Yes, which is why we always fix the value of theta. eg \(E(X|\theta)\)