An insurance company with an initial capital of 47 is distributing its Binomial- compound-Gamma portfolio with 23 contracts among 18 identical reinsurance companies. What is the optimal premium it should pay to each of the reinsurers in exchange for taking on its risk? Assume that: • the company is willing to accept a probability of ruin of 0.03 under Cramer- Lundberg's model, • the probability of having a claim filed is 0.1, • the mean of the claims is of 8, • the variance of the claims is 1.
An insurance company with an initial capital of 47 is distributing its Binomial- compound-Gamma portfolio with 23 contracts among 18 identical reinsurance companies. What is the optimal premium it should pay to each of the reinsurers in exchange for taking on its risk? Assume that: • the company is willing to accept a probability of ruin of 0.03 under Cramer- Lundberg's model, • the probability of having a claim filed is 0.1, • the mean of the claims is of 8, • the variance of the claims is 1.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:An insurance company with an initial capital of 47 is distributing its Binomial-
compound-Gamma portfolio with 23 contracts among 18 identical reinsurance
companies.
What is the optimal premium it should pay to each of the reinsurers in exchange for
taking on its risk?
Assume that:
• the company is willing to accept a probability of ruin of 0.03 under Cramer-
Lundberg's model,
• the probability of having a claim filed is 0.1,
• the mean of the claims is of 8,
• the variance of the claims is 1.
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