Data clustering with actuarial applications.(English)Zbl 1454.91186

Summary: Data clustering refers to the process of dividing a set of objects into homogeneous groups or clusters such that the objects in each cluster are more similar to each other than to those of other clusters. As one of the most popular tools for exploratory data analysis, data clustering has been applied in many scientific areas. In this article, we give a review of the basics of data clustering, such as distance measures and cluster validity, and different types of clustering algorithms. We also demonstrate the applications of data clustering in insurance by using two scalable clustering algorithms, the truncated fuzzy $$c$$-means (TFCM) algorithm and the hierarchical $$k$$-means algorithm, to select representative variable annuity contracts, which are used to build predictive models. We found that the hierarchical $$k$$-means algorithm is efficient and produces high-quality representative variable annuity contracts.

MSC:

 91G05 Actuarial mathematics 62P05 Applications of statistics to actuarial sciences and financial mathematics 62H30 Classification and discrimination; cluster analysis (statistical aspects)

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References:

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