Losses from a line of insurance follow a Pareto distribution with a = 2 and 0 = 2000. It is found that the loss sizes are inflated by 4% uniformly, and the insurer changes the policy terms so that it will pay 80% of each loss after applying a $100 deductible subject to a maximum covered loss of $5,000. Calculate the insurer's expected payment per loss after the inflation, correct to two decimal places.

Losses from a line of insurance follow a Pareto distribution with a = 2 and 0 = 2000. It is found that the loss sizes are inflated by 4% uniformly, and the insurer changes the policy terms so that it will pay 80% of each loss after applying a $100 deductible subject to a maximum covered loss of $5,000. Calculate the insurer's expected payment per loss after the inflation, correct to two decimal places.

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Description: (a) Losses from a line of insurance follow a Pareto distribution with a =2 and 0 = 2000. Itis found that the loss sizes are inflated by 4% uniformly, and the insurer changes thepolicy terms so that it will pay 80% of each loss after applying a $100

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

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Concept explainers

Contingency Table

A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.

Binomial Distribution

Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.

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(a) Losses from a line of insurance follow a Pareto distribution with a =2 and 0 = 2000. It
is found that the loss sizes are inflated by 4% uniformly, and the insurer changes the
policy terms so that it will pay 80% of each loss after applying a $100 deductible subject
to a maximum covered loss of $5,000. Calculate the insurer's expected payment per loss
after the inflation, correct to two decimal places.

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