It seems that there are people who are prepared to accept what the numerical analyst would regard as a shockingly poor approximation to F (x, t), the distribution function of aggregate claims in the interval of time (o, t), provided it can be quickly produced on a desk or pocket computer with the use of standard statistical tables. The so-called NP (Normal Power) approximation has acquired an undeserved reputation for accuracy among the various possibilities and we propose to show why it should be abandoned in favour of a simple gamma function approximation.Discounting encomiums on the NP method such as Bühlmann's (1974): “Everybody known to me who has worked with it has been surprised by its unexpectedly good accuracy”, we believe there are only three sources of original published material on the approximation, namely Kauppi et al (1969), Pesonen (1969) and Berger (1972). Only the last two authors calculated values of F(x, t) by the NP method and compared them with “true” four or five decimal values obtained by inverting the characteristic function of F(x, t) on an electronic computer.
On generalized least power approximation
