Calculate the maximum premium that Jayne would be prepared to pay to insure herself against the...

 

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Calculate the maximum premium that Jayne would be prepared to pay to insure herself against the total loss of her house worth £100,000 if her initial level of wealth was £140,000 and comment on your results. You may assume that Jayne's utility function can be described as U (w) = √w and that the probability of a loss of £100,000 is 0.01. (ii) Suppose that UN Life plc has an initial wealth of £100 million and a utility function of the form U(w)=w. Find the minimum premium UN Life plc would require in order to offer insurance to Jayne and comment on whether insurance is feasible in this instance. Use a general reasoning argument to construct Thiele's differential equation for a regular premium n-year term assurance for a life aged x by considering the change in reserves over a short time period. Assume that: interest is earned continuously at force of interest 8; premiums are payable continuously at rate Ppa; and the sum assured of 1 is payable immediately on death. Calculate the maximum premium that Jayne would be prepared to pay to insure herself against the total loss of her house worth £100,000 if her initial level of wealth was £140,000 and comment on your results. You may assume that Jayne's utility function can be described as U (w) = √w and that the probability of a loss of £100,000 is 0.01. (ii) Suppose that UN Life plc has an initial wealth of £100 million and a utility function of the form U(w)=w. Find the minimum premium UN Life plc would require in order to offer insurance to Jayne and comment on whether insurance is feasible in this instance. Use a general reasoning argument to construct Thiele's differential equation for a regular premium n-year term assurance for a life aged x by considering the change in reserves over a short time period. Assume that: interest is earned continuously at force of interest 8; premiums are payable continuously at rate Ppa; and the sum assured of 1 is payable immediately on death.

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i Jaynes utility if she buys no insurance Uw 140000 11859 Expected utility if she buys insurance Pro... View the full answer