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I have a set of observations of credit loss data, where the mean is 37% and variance 25%. Now, I have to find the distribution and the base assumption is it will follow a beta distribution. the issue is that my alpha and beta derived from mean and variance is being estimated at -0.025012 and -0.042588. I dont understand what to do with the negative values of alpha and beta. The formula which I am using to calculate alpha is mean*(((mean*(1-var))/var)-1) and beta is calculated by (1-mean)(((mean*(1-mean))/var)-1). Please do let me know how can I solve the problem.

Bik
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1 Answers1

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$B(a,b) = \int_0^{1} x^{a-1}(1-x)^{b-1}dx$

is the denominator for the pdf of a beta distribution, yes? solve that and plug it
into

$f(x)= \frac{1}{B(a,b)}x^{a-1}(1-x)^{b-1}$

user65384
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