Loss Distribution Illustration - PDFs

Mean
Standard dev

Distribution
Gamma
Pareto (2 param)
Pareto (3 param)
Lognormal
Weibull
Burr

200
300

Estimates of parmameter values using method of moments

= 0.4444
= 0.0022
= 3.6000
= 520.00
= 2.8571
= 185.714
k=
= 4.7090
= 1.1787
c = 0.0317
= 0.6848
= 1.1937
= 25184.1
=

Comparison of the tails of loss distributions

for a given mean and variance
Gamma

Pareto (2 param)

Pareto (3 param)

Lognormal

Weibull

Burr

Gamma
Lognormal

0.0000002

0.00045

1.8E-07

0.0004

1.6E-07

0.00035

1.4E-07

0.0003

1.2E-07
f(x)

f(x)

0.0005

0.00025

0.0000001

0.0002

8E-08

0.00015

6E-08

0.0001

4E-08

0.00005

2E-08

0
100

200

300

400

500

600

700

claim amount x

800

900

1000

0
5000

For the graphs to show a meaningful

comparison, we need the mean and
variance to be the same for all
distributions.

s using method of moments

Check
Mean Variance
200
90000
200
90000
200
90000
200
90000
200
90000
200
90000

Std dev
300
300
300
300
300
300

Comparison of the tails of loss distributions

for a given mean and variance
Gamma

Pareto (2 param)

Pareto (3 param)

Lognormal

Weibull

Burr

0.0000002
1.8E-07
1.6E-07

1.4E-07
1.2E-07
0.0000001
8E-08
6E-08
4E-08
2E-08
0
5000

6000

7000

8000

claim amount x

9000

10000

x
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
2200
2300
2400
2500
2600
2700
2800
2900
3000
3100
3200
3300
3400
3500
3600
3700
3800
3900
4000
4100
4200
4300
4400
4500
4600

4700
4800
4900
5000
5100
5200
5300
5400
5500
5600
5700
5800
5900
6000
6100
6200
6300
6400
6500
6600
6700
6800
6900
7000
7100
7200
7300
7400
7500
7600
7700
7800
7900
8000
8100
8200
8300
8400
8500
8600
8700
8800
8900
9000
9100
9200
9300
9400
9500
9600
9700
9800
9900
10000

PDF data
Gamma
Pareto (2 param) Pareto (3 param)
f(x)
f(x)
f(x)
0.002059156
0.003082569
0.003942761
0.001121865
0.001549477
0.001835611
0.000717137
0.000851865
0.000898666
0.00048942
0.000501754
0.000482645
0.000346205
0.000312143
0.000280563
0.000250515
0.000203007
0.0001738
0.000184133
0.000136981
0.000113314
0.0001369
9.53398E-05
7.7024E-05
0.000102678
6.81378E-05
5.4194E-05
7.75434E-05
4.98235E-05
3.92512E-05
5.88897E-05
3.7166E-05
2.91371E-05
4.49299E-05
2.82152E-05
2.20921E-05
3.44123E-05
2.17564E-05
1.70613E-05
2.64438E-05
1.7011E-05
1.33903E-05
2.03783E-05
1.34678E-05
1.06599E-05
1.57429E-05
1.07837E-05
8.59444E-06
1.21884E-05
8.7235E-06
7.00822E-06
9.4547E-06
7.12311E-06
5.77341E-06
7.34671E-06
5.86629E-06
4.80034E-06
5.71751E-06
4.86936E-06
4.02495E-06
4.4558E-06
4.07126E-06
3.40081E-06
3.47689E-06
3.42687E-06
2.89375E-06
2.71617E-06
2.90248E-06
2.47827E-06
2.12411E-06
2.4726E-06
2.13517E-06
1.66272E-06
2.11779E-06
1.84978E-06
1.3027E-06
1.82307E-06
1.61078E-06
1.02148E-06
1.5768E-06
1.40939E-06
8.01578E-07
1.36987E-06
1.2387E-06
6.29462E-07
1.19507E-06
1.09323E-06
4.94629E-07
1.04669E-06
9.6863E-07
3.88918E-07
9.20143E-07
8.61393E-07
3.05977E-07
8.1174E-07
7.68683E-07
2.40854E-07
7.18494E-07
6.88192E-07
1.89689E-07
6.37968E-07
6.1803E-07
1.49464E-07
5.68165E-07
5.56642E-07
1.17823E-07
5.07443E-07
5.02736E-07
9.29202E-08
4.54441E-07
4.55241E-07
7.33105E-08
4.08027E-07
4.1326E-07
5.78614E-08
3.67259E-07
3.76039E-07
4.56847E-08
3.31343E-07
3.42942E-07
3.6083E-08
2.99614E-07
3.1343E-07
2.85088E-08
2.71507E-07
2.87046E-07
2.25316E-08
2.46546E-07
2.63399E-07
1.78129E-08
2.24324E-07
2.42152E-07
1.40865E-08
2.04493E-07
2.2302E-07
1.11427E-08
1.86755E-07
2.05752E-07

Lognormal
f(x)
0.003657893
0.001585628
0.000804963
0.000457237
0.000280939
0.000182877
0.00012444
8.77102E-05
6.36211E-05
4.72639E-05
3.58299E-05
2.76384E-05
2.16443E-05
1.71768E-05
1.37928E-05
1.11925E-05
9.16868E-06
7.57527E-06
6.30761E-06
5.28952E-06
4.46477E-06
3.79132E-06
3.23738E-06
2.77865E-06
2.39639E-06
2.07598E-06
1.80596E-06
1.57723E-06
1.38256E-06
1.21614E-06
1.07327E-06
9.50114E-07
8.43566E-07
7.51054E-07
6.70457E-07
6.00017E-07
5.38265E-07
4.83973E-07
4.36108E-07
3.93797E-07
3.56302E-07
3.22994E-07
2.93337E-07
2.66873E-07
2.43207E-07
2.22001E-07

Weibull
f(x)
0.002419296
0.001239006
0.000744414
0.000482577
0.00032777
0.000229944
0.000165261
0.000121045
9.00354E-05
6.78356E-05
5.16717E-05
3.97337E-05
3.08086E-05
2.40649E-05
1.89218E-05
1.49667E-05
1.19026E-05
9.51283E-06
7.63755E-06
6.15782E-06
4.9842E-06
4.04897E-06
3.30042E-06
2.69886E-06
2.21357E-06
1.82068E-06
1.50154E-06
1.24148E-06
1.02893E-06
8.54718E-07
7.11553E-07
5.93601E-07
4.96186E-07
4.15548E-07
3.48649E-07
2.93033E-07
2.46703E-07
2.08034E-07
1.75699E-07
1.48614E-07
1.25886E-07
1.06783E-07
9.07016E-08
7.71429E-08
6.56943E-08
5.60135E-08

8.8164E-09
6.97753E-09
5.52353E-09
4.37354E-09
3.46374E-09
2.74378E-09
2.17392E-09
1.72276E-09
1.36549E-09
1.08251E-09
8.58321E-10
6.80681E-10
5.39895E-10
4.28296E-10
3.39818E-10
2.69658E-10
2.14014E-10
1.69876E-10
1.3486E-10
1.07075E-10
8.50258E-11
6.75253E-11
5.36333E-11
4.26042E-11
3.3847E-11
2.68928E-11
2.13697E-11
1.69827E-11
1.34976E-11
1.07288E-11
8.5288E-12
6.78054E-12
5.39115E-12
4.28683E-12
3.40902E-12
2.71118E-12
2.15638E-12
1.71524E-12
1.36446E-12
1.08549E-12
8.63632E-13
6.87165E-13
5.46796E-13
4.3513E-13
3.46293E-13
2.75611E-13
2.19371E-13
1.74618E-13
1.39003E-13
1.10659E-13
8.81005E-14
7.01445E-14
5.58514E-14
4.44733E-14

1.70856E-07
1.56574E-07
1.4372E-07
1.32128E-07
1.21654E-07
1.12174E-07
1.03578E-07
9.57711E-08
8.86688E-08
8.21974E-08
7.6292E-08
7.08951E-08
6.59559E-08
6.14293E-08
5.72754E-08
5.34584E-08
4.99467E-08
4.67118E-08
4.37284E-08
4.09738E-08
3.84276E-08
3.60714E-08
3.38888E-08
3.18649E-08
2.99862E-08
2.82407E-08
2.66173E-08
2.51061E-08
2.3698E-08
2.2385E-08
2.11594E-08
2.00146E-08
1.89443E-08
1.79429E-08
1.70052E-08
1.61264E-08
1.53024E-08
1.4529E-08
1.38027E-08
1.31201E-08
1.24782E-08
1.18741E-08
1.13053E-08
1.07692E-08
1.02638E-08
9.787E-09
9.33688E-09
8.91171E-09
8.50987E-09
8.12988E-09
7.77035E-09
7.42998E-09
7.1076E-09
6.80209E-09

1.90134E-07
1.7598E-07
1.63128E-07
1.51435E-07
1.40779E-07
1.31049E-07
1.22152E-07
1.14001E-07
1.06524E-07
9.96542E-08
9.33329E-08
8.75082E-08
8.2134E-08
7.71688E-08
7.25758E-08
6.83217E-08
6.43769E-08
6.07146E-08
5.73108E-08
5.41439E-08
5.11942E-08
4.84441E-08
4.58774E-08
4.34796E-08
4.12375E-08
3.91391E-08
3.71733E-08
3.53303E-08
3.36009E-08
3.19767E-08
3.04502E-08
2.90143E-08
2.76626E-08
2.63893E-08
2.51889E-08
2.40565E-08
2.29874E-08
2.19775E-08
2.10228E-08
2.01198E-08
1.9265E-08
1.84555E-08
1.76884E-08
1.69609E-08
1.62708E-08
1.56156E-08
1.49933E-08
1.4402E-08
1.38397E-08
1.33047E-08
1.27956E-08
1.23107E-08
1.18488E-08
1.14084E-08

2.02961E-07
1.85834E-07
1.704E-07
1.56467E-07
1.43868E-07
1.32456E-07
1.22104E-07
1.12698E-07
1.0414E-07
9.63421E-08
8.92271E-08
8.27264E-08
7.67794E-08
7.1332E-08
6.63363E-08
6.17494E-08
5.7533E-08
5.36529E-08
5.00783E-08
4.67818E-08
4.37386E-08
4.09265E-08
3.83253E-08
3.59171E-08
3.36854E-08
3.16154E-08
2.96938E-08
2.79083E-08
2.6248E-08
2.47029E-08
2.32637E-08
2.19223E-08
2.0671E-08
1.95029E-08
1.84116E-08
1.73915E-08
1.64372E-08
1.55439E-08
1.4707E-08
1.39227E-08
1.3187E-08
1.24965E-08
1.18481E-08
1.12388E-08
1.0666E-08
1.01271E-08
9.61988E-09
9.14219E-09
8.69208E-09
8.26773E-09
7.86745E-09
7.48969E-09
7.13301E-09
6.79606E-09

4.78161E-08
4.08656E-08
3.49646E-08
2.99483E-08
2.56789E-08
2.20408E-08
1.89372E-08
1.62865E-08
1.40201E-08
1.20803E-08
1.04184E-08
8.99296E-09
7.76928E-09
6.71775E-09
5.81331E-09
5.03469E-09
4.36378E-09
3.78518E-09
3.28576E-09
2.85434E-09
2.48135E-09
2.15862E-09
1.87916E-09
1.63699E-09
1.42698E-09
1.24472E-09
1.08643E-09
9.48869E-10
8.29232E-10
7.25118E-10
6.34451E-10
5.55444E-10
4.86554E-10
4.26448E-10
3.73973E-10
3.28134E-10
2.88067E-10
2.53025E-10
2.22361E-10
1.95512E-10
1.71991E-10
1.51374E-10
1.33293E-10
1.17428E-10
1.035E-10
9.12655E-11
8.05143E-11
7.10615E-11
6.27462E-11
5.54282E-11
4.89847E-11
4.33086E-11
3.83062E-11
3.38956E-11

Burr
f(x)
0.004552341
0.002353944
0.001012715
0.000476492
0.000249806
0.000143351
8.83677E-05
5.76537E-05
3.93687E-05
2.79013E-05
2.03929E-05
1.52961E-05
1.17287E-05
9.16549E-06
7.28142E-06
5.86878E-06
4.79094E-06
3.95568E-06
3.29939E-06
2.77727E-06
2.35719E-06
2.01575E-06
1.73565E-06
1.5039E-06
1.31065E-06
1.14836E-06
1.01114E-06
8.94418E-07
7.94553E-07
7.08655E-07
6.34403E-07
5.69916E-07
5.13666E-07
4.64398E-07
4.21077E-07
3.82847E-07
3.48992E-07
3.18914E-07
2.92108E-07
2.68148E-07
2.46673E-07
2.27372E-07
2.09982E-07
1.94276E-07
1.80058E-07
1.67159E-07

1.55431E-07
1.44747E-07
1.34995E-07
1.26077E-07
1.17907E-07
1.1041E-07
1.03519E-07
9.71745E-08
9.13246E-08
8.59227E-08
8.09274E-08
7.63018E-08
7.20129E-08
6.80311E-08
6.43298E-08
6.08851E-08
5.76755E-08
5.46817E-08
5.18861E-08
4.92728E-08
4.68275E-08
4.4537E-08
4.23896E-08
4.03743E-08
3.84814E-08
3.67019E-08
3.50275E-08
3.34507E-08
3.19646E-08
3.05629E-08
2.92398E-08
2.799E-08
2.68084E-08
2.56907E-08
2.46325E-08
2.36302E-08
2.268E-08
2.17787E-08
2.09233E-08
2.01109E-08
1.93389E-08
1.86048E-08
1.79064E-08
1.72416E-08
1.66084E-08
1.6005E-08
1.54297E-08
1.48809E-08
1.43571E-08
1.38569E-08
1.33791E-08
1.29224E-08
1.24857E-08
1.20679E-08

THINGS TO TRY
Existing graphs
Start by looking at the existing graphs.
Which distribution has the fattest tail for the highest claim amounts?
Which distribution has the thinest tail for the highest claim amounts?
Here are the PDF formulae that have been used to calculate the values in the graphs:
Gamma:

-1 -x
x e
,

x > 0, > 0, > 0

Pareto (2 param)

+1
+x

x > 0, > 0, > 0

Pareto (3 param)

+k xk-1
,

+k
k +x

x > 0, > 0, > 0, k > 0

Lognormal

1 x- 2
1
exp -
,
2

x 2

x > 0, > 0

Weibull

-1 -cx
cx e
,

x > 0, c > 0, > 0

Burr

x-1
,

+1
+x

x > 0, > 0, > 0, > 0

 x-1
,
+1

+x

x > 0, > 0, > 0, > 0

For each of the above pdfs, consider the parts of the formula involving x.
Given the parameter values used, which of the pdfs would you expect to tend to 0 the slowest as x tends to in
Which would you expect to tend to 0 the fastest as x tends to infinity?
Does this correspond with what you are seeing on the graphs?

Changing the parameter estimates

The parameter estimates for the gamma, pareto and lognormal distributions have been obtained using the method of mom
using the mean and the variance.
By changing the mean and the standard deviation, this will change the parameter estimates for these distributions.
Note that, for the 3-parameter Pareto distribution, we have fixed the value of k to be 2. But you are free to change this.
There is no analytical method of moments solution for the Weibull and Burr distributions.

To change the parameter estimates for the Weibull distribution, to give the same mean and variance as the other distributio
"goal seek" the variance in cell K13 to be the same as the variance of the other distributions, by varying the value of in cell F
To change the parameter estimates for the Burr distribution, to give the same mean and variance as the other distributions,
"goal seek" the variance in cell K14 to be the same as the variance of the other distributions, by varying the value of in cell
Note that, we have fixed the value of to be 2. But you are free to change this.
Warning: not all means and standard deviations will result in defined parameter values.
Warning: you may find you need to change the scale of the y axis on the graphs if you change the parameter values.

to tend to 0 the slowest as x tends to infinity?

ave been obtained using the method of moments

er estimates for these distributions.

to be 2. But you are free to change this.

me mean and variance as the other distributions, you need to:

distributions, by varying the value of in cell F13.

mean and variance as the other distributions, you need to:

distributions, by varying the value of in cell D14.

if you change the parameter values.

ABOUT THIS SPREADSHEET

The calculation formulae in this spreadsheet have been locked to
prevent you from accidentally changing them. If you want to see
the underlying formulae on one of the worksheets, select
Tools > Protection > Unprotect sheet. No password is required.
This spreadsheet is provided for illustration purposes only.
BPP cannot take responsibility for its use for any other purpose.
Version 1.0
Copyright BPP September 2011
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