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A new lifetime distribution with applications in inventory and insurance

Shovan Chowdhury (Indian Institute of Management Kozhikode, Kozhikode, India)
Asok K. Nanda (Indian Institute of Science Education and Research Kolkata, Kolkata, India)

International Journal of Quality & Reliability Management

ISSN: 0265-671X

Article publication date: 5 February 2018

430

Abstract

Purpose

The purpose of this paper is to introduce a new probability density function having both unbounded and bounded support with a wider applicability. While the distribution with bounded support on [0, 1] has applications in insurance and inventory management with ability to fit risk management data on proportions better than existing bounded distributions, the same with unbounded support is used as a lifetime model and is considered as an attractive alternative to some existing models in the reliability literature.

Design/methodology/approach

The new density function, called modified exponential-geometric distribution is derived from the exponential-geometric distribution introduced by Adamidis and Loukas (1998). The support of the density function is shown to be both unbounded and bounded depending on the values of one of the shape parameters. Various properties of the density function are studied in detail and the parameters are estimated through maximum likelihood method of estimation. A number of applications related to reliability, insurance and inventory management are exhibited along with some useful data analysis.

Findings

A single probability distribution with both unbounded and bounded support, which does not seem to exist in the reliability literature, is introduced in this paper. The proposed density function exhibits varying shapes including U-shape, and the failure rate also shows increasing, decreasing and bathtub shapes. The Monte Carlo simulation shows that the estimates of the parameters are quite stable with low standard errors. The distribution with unbounded support is shown to have competitive features for lifetime modeling through analysis of two data sets. The distribution with bounded support on [0, 1] is shown to have application in insurance and inventory management and is found to t data on proportions related to risk management better than some existing bounded distributions.

Originality/value

The authors introduce an innovative probability distribution which contributes significantly in insurance and inventory management besides its remarkable statistical and reliability properties.

Keywords

Acknowledgements

The authors are thankful to the reviewers for their constructive comments and suggestions. Shovan Chowdhury acknowledges the financial support from Indian Institute of Management, Kozhikode, Kerala, India (Grant No. IIMK/SGRP/2014/72). The financial support from NBHM, Govt. of India (Grant No. 2/48(25)/2014/NBHM(R.P.)/R & D II/1393 dt. 03.02.2015) is acknowledged by Asok K. Nanda.

Citation

Chowdhury, S. and Nanda, A.K. (2018), "A new lifetime distribution with applications in inventory and insurance", International Journal of Quality & Reliability Management, Vol. 35 No. 2, pp. 527-544. https://doi.org/10.1108/IJQRM-12-2016-0227

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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