Simulation of Compound Hierarchical Models in R

Abstract

Hierarchical probability models are widely used in insurance applications for data classified in a tree-like structure and in Bayesian inference. We propose an R function to simulate data from compound models in which both the frequency component and the severity component can have a hierarchical structure. The model description method is based solely on R expressions, and it allows for models with any number of levels and nodes per level, as well as with very general conditional probability structures. The function is part of the R package actuar.