Problem A11, page 369
This was Ques. 12, Spring 1993.
You are given the following:
(i) The underlying distribution for 1992 losses is given by f(x) =
exp(-x), x>0, where losses are expressed in millions of dollars.
(ii) Inflation of 10% impacts all claims uniformly from 1992 to 1993.
(iii) Under a basic limits policy, individual losses are capped at $1.0
million.
What is the inflation rate from 1992 to 1993 on the capped losses?
I do not understand how
E[X';1] is calculated ?
Does anyone have a clue about this one?
Thanks a lot.