Cheng-Sheng Peter Wu
Abstract
The problem considered is that of reconciling two rate level indications that are based on several common factors, but have been made at different review periods. A popular approach to this problem is the so-called sequential replacement method, which calculates the impact of each individual factor. Unfortunately, this method has a serious deficiency: the estimated impact of a factor depends upon the order of the replacement. To counteract this defect, a new approach, called the {\it chain rule approach,} is developed. Using this approach, an explicit formula is given for calculating the impact and the marginal impact of each factor.
Key words and phrases: sequential replacement approach, factor impact, marginal factor impact
Cheng-Sheng Peter Wu