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Risk Theory

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15 views2 pages

Risk Theory

Uploaded by

kibetjacky
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

An actuary determines that N the number of claims per week, is a


1
random variable with P ( N=n )= n+1 , where n ≥ 0 The actuary also determines that
2
the number of claims in a given week is independent of the number of claims
received in any other week. Determine the probability that exactly seven claims will
be made in a two-week period.

2. In Nakuru city, annual losses due to floods, fire, and theft are independently
distributed random variables. The pdfs are:
Motor accident fire theft
−x −2 x −5 x
f ( x )=e
2e 3 5 e 12
f ( x )= f ( x )=
3 12
Determine the probability that the maximum of these losses is greater than 3.

3. Sanlam insurance company insures a large number of commercial buildings in


Nairobi metropolitan area. The insured value, Kshs . X of a randomly selected
building is assumed to follow a distribution with density function

{
−4
f ( x )= 3 x for x> 1
0 otherwise
Given that a randomly selected building is insured for at least 1.5million, what is the
probability that it is insured for less than 2million?

4. Jubilee insurance models their loss distribution due to a fire in a commercial


building is modeled by a random variable X with density function

{
f ( x )= 0.005 ( 20−x ) for 0< x <20
0 otherwise
Given that a fire loss exceeds 8, what is the probability that it exceeds 16?

5. The pdf of X is f ( x )=5 e−5 x for x> 0. Find the moment generating function of X and
use it to find the first and second moments of X , and the variance of X .

α
6. The moment generating function of X is given as for > t <α , where α >0.
α −t
Find Var ( X).

7. Each of the following is a moment generating function for a discrete non-negative


integer-valued random variable. For each random variable, find the mean, variance
and the probability Pr ⁡(X ≤ 2).

8. You are an actuary in Meridian insurance and you determine that the claim size
for fire domestic accidents is a random variable, Kshs . X , with moment generating
1
function M x ( t )=
( 1−2500 t )4
Determine the standard deviation of the claim size for this class of accidents.
9. Britam insurance insures homes in three cities, Kisumu, Nakuru, and Nairobi. The
company assumes that the losses occurring in these cities are independent. The

M K ( t )=( 1−2t ) , M N ( t )=( 1−2t ) , M N ( t )=( 1−2t )


moment generating functions for the loss distributions of the cities are:
−3 −2.5 − 4.5

Let X represent the combined losses from the three cities. Calculate E( X 3) .

10. AMARCO insurance prices its fire insurance using the following assumptions:
(i) In any calendar year, there can be at most one fire.
(ii) In any calendar year, the probability of a fire is 0.05 .
(iii) The number of fires in any calendar year is independent of the number of fires
in
any other calendar year.
Using the company’s assumptions, calculate the probability that there are fewer
than 3 fires in a 20-year period.

11. The arrival time for the first claim from a Lorry driver and the arrival time for the
first
claim from a Matatu driver are independent and follow exponential distributions
with means 6 years and 3 years, respectively. What is the probability that the first
claim from a Lorry driver will be filed within 3 years and the first claim from a
Matatu driver will be filed within 2 years?

12. A loss random variable is uniformly distributed between 0 and 1000. A


deductible of 200 is applied before any insurance payment. Find the expected
amount paid by the insurer when a loss occurs.

13. A loss random variable is exponentially distributed with a mean of 1000. A


deductible of 200 is applied before any insurance payment. Find the expected
amount paid by the insurer when a loss occurs.
14. (i) Define, in your own words, reinsurance. [2]
(ii) Outline, in your own words, the advantages and disadvantages of excess of loss and quota
share reinsurance. [4]

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