SOME ALTERNATIVES FOR THE INDIVIDUAL MODEL

Three approximations for the total claims of a risk portfolio (individ ual model) are compared: the traditional collective (compound Poisson) model, a compound binomial model, and a compound pseudo-binomial mode l (nearly homogeneous portfolio). Of these, only the collective model is a prudent choice in terms of stop-loss order. The binomial model ha s a larger variance, but the nearly homogeneous approximation might ha ve a lower one. The binomial model also leads to an exponentially larg er distribution.