The NOAA (National Oceanic and Atmospheric Agency) has forecasted that there is a 5% chance of a
Question:
The NOAA (National Oceanic and Atmospheric Agency) has forecasted that there is a 5% chance of a hurricane making landfall in Florida in 2024. The Panhandle Insurance company based in Florida is using this prediction to calculate its economic capital at a 99% and a 95% confidence level.
Based on its exposures, Panhandle Insurance Company's risk management estimates that if a hurricane makes landfall there is a 30% chance that the losses could be a random number between $60 and $90 and there is a 70% chance that the losses may be a random number between $15 and $40
If there is no hurricane there will still be losses due to theft, water leaks, equipment damage and so on - the insurance company estimates in the event there is no hurricane, there is a 40% chance that the losses will be a random number between $10 and $20 while there is a 60% chance there losses will be a random number between $1 and $10
Calculate the economic capital at the 99% and a 95% confidence level - use 1000 simulations. You have to use the if function in excel, rand() function, and the rand between() function. upload excel file
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield