I know its a silly question but quite important on the other hand though.. I've been confused what is the difference b/w collective risk model and individual risk model..?? Can you please provide an example. Secondly, for these two chapters (6 & 7) I am not memorizing many formulae but rather solving them by Intuition and common sense.. I am wondering whether this approch is appropriate? Thanks in advance..!
The collective risk model lumps all the claims from the risks (that is the policies) together. So you may have several claims from one risk and none from others. The indvidual risk model looks at the claims from the n risks (ie policies) individually and totals them up. However, the real difference is that the individual risk assumes that each risk has at most one claim. This is the main difference. So the individual risk is used to model life assurance. Ch6 formulae all given on page 16 of the Tables Ch7 collective risk and reinsurance just uses the p16 formulae but with Y's or Z's instead of X's (then calculate those using Ch4 formulae) Only the individual risk E(S), var(S) and MGF(S) are needful - though can be derived.
