Questions 12 & 13, Fall 1998
You are given the following:
Losses follow a distribution (prior to the application of any deductible)
with cumulative distribution function and limited expected values as
follows:
Loss Size F(x) E[X;x]
10,000 0.60 6,000
15,000 0.70 7,700
22,500 0.80 9,500
infinity 1.00 20,000
There is a deductibleof 15,000 per loss and no policy limit
The insurer makes a nonzero payment p
Question 12
What is the expected value of p ?
Here, I used the mean residual formula and came up with $41,000. Does
anyone disagree?
Question 13
After several years of inflation, all losses have increased in size by 50%,
but the deductible has remained the same.
Determine the expected value of p.
This is where I am stuck.
I will appreciate it if anyone can help me out on this one.
Thanks.
Ashwin
What is the expected value of p