Why are the previous years multiplied by the j (discount) factor - and why is it just 'j' for both, and not maybe j squared for the one that's 2 years ago? thanks.
These two terms represent the INCREASE in the discounted cost of the earliers year's claims over the year. The only difference between the start and the end of the year is that the discounting will apply for one year less. Hence taking j times the expressions gives you the increase.
