5. An insurance company as two-types of auto insurance policies, policy A and policy B. Each...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
5. An insurance company as two-types of auto insurance policies, policy A and policy B. Each policy has claims that follow a Poisson distribution with different means. Policy A has an average of 0.03 claims per year, Policy B has an average of 0.04 claims per year. The payout for each claim also varies per policy: for policy A, it follows an exponential distribution with mean 5,000; for policy B, it follows an exponential distribution with mean 10,000. In the coming year, the insurance company estimates selling 10,000 policies of type A, and 5,000 policies of type B. Let S = SA+SB denote the total claim ammount. (a) (3 points) From a Theorem in class and the textbook you know that the total claim S = SA+ SB is distributed according to a compound Poisson process, i.e. S = X. Determine the probability density function of the severity random variable X. 5. An insurance company as two-types of auto insurance policies, policy A and policy B. Each policy has claims that follow a Poisson distribution with different means. Policy A has an average of 0.03 claims per year, Policy B has an average of 0.04 claims per year. The payout for each claim also varies per policy: for policy A, it follows an exponential distribution with mean 5,000; for policy B, it follows an exponential distribution with mean 10,000. In the coming year, the insurance company estimates selling 10,000 policies of type A, and 5,000 policies of type B. Let S = SA+SB denote the total claim ammount. (a) (3 points) From a Theorem in class and the textbook you know that the total claim S = SA+ SB is distributed according to a compound Poisson process, i.e. S = X. Determine the probability density function of the severity random variable X.
Expert Answer:
Related Book For
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman
Posted Date:
Students also viewed these finance questions
-
MUST BE CORRECT ANSWERS A small software company has the following simplified cashflow, funded by shareholders' equity of 20,000 and a bank overdraft of 5000: Invoiced money received 2 months after...
-
Q1. You have identified a market opportunity for home media players that would cater for older members of the population. Many older people have difficulty in understanding the operating principles...
-
The following linear systems Ax = b have x as the actual solution and x as an approximate solution. Compute ||x x|| and ||Ax b|| a. 1/2 x1 + 1/3 x2 = 1/63, 1/3 x1 + 1/4 x2 = 1/168, x = ( 1/7 ,1/6)t...
-
The shareholders' equity of Kramer Industries includes the data shown below. During 2019, cash dividends of $150 million were declared. Dividends were not declared in 2017 or 2018....
-
Listed here are an individual partners investments for several partnerships. Instructions Using the form provided in your working papers, calculate Partner As percentage ownership in each...
-
A safety PLC manufacturer has stated that proof testing includes only physical inspection for deterioration and damage, and a check for unauthorized program changes Detailed test of the programmed...
-
Ed Draycutt is the engineering manager of Airway Technologies, a firm that makes computer systems for air traffic control installations at airports. He has proposed a new device whose success depends...
-
A six - cylinder 4 - stroke cycle petrol engine is to be designed to develop 3 2 0 kW of ( b . p ) at 2 6 0 0 rpm , the bore / stroke ratio is to be 1 : 1 . 3 . Assuming the mechanical efficiency is...
-
Rocky Company has beginning equity of $600,000, net income of $100,000, dividends of $60,000 and investments by owners in exchange for stock of $20,000. Its ending equity is. A) $446,000 B) $480,000...
-
Discuss the reasons why the six items most likely to receive an audit adjustment are so sensitive. Why should the health care organization spend so much time on each of these items?
-
Which is a benefit of cooperatives? a. The power of the group enables them to negotiate for goods and services at favorable prices. b. They are exempt from paying federal and state taxes. c. They are...
-
Discuss the needs for hospitals to spend the time developing the fi ve-year strategic fi nancial plan. What benefi ts can be gained by the hospital. What would be the results if this plan were not...
-
Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock? a. Historical cost. b. Book value. c. Cost...
-
Beginning a business requires a lot of planning, but even still, the business often fails. However, most business owners do not have an exit plan in mind when they start the venture. Research the...
-
Joe owns a stock which has probability .5 of going up.This morning, he bought a ticket in a lottery gamewhich gives him a probability .0001 of winning. Whatis the probability that Joe's stock will go...
-
When you weigh yourself on good old terra firma (solid ground), your weight is 142 lb. In an elevator your apparent weight is 121 lb. What are the direction and magnitude of the elevator's...
-
Five departments of National Training Institute, a nonprofit organization, share a rented building. Four of the departments provide services to educational agencies and have little or no competition...
-
The Flower City Grocery is faced with the following capital budgeting decision. Its display freezer system must be repaired. The cost of this repair will be $ 1,000 and the system will be usable for...
-
Bio Labs is a genetic engineering firm manufacturing a variety of gene- spliced, agricultural- based seed products. The firm has five separate laboratories producing different product lines. Each lab...
-
A company issues a \(10 \%\) coupon bond that matures in 5 years. However, this company is in trouble, and it is estimated that each year there is a probability of .1 that it will default that year....
-
Calculate the volatility and the current price of oil futures implied by the call 1600 August and the call 1700 August of Figure 19.8 by using the Black-Scholes formula with \(T=.25\). OIL CRUDE OIL...
-
Mr. Smith wants to buy a car and is deciding between brands A and B. Car A costs \(\$ 20,000\), and Mr. Smith estimates that at the rate he drives he will sell it after 2 years and buy another of the...
Study smarter with the SolutionInn App