A&J Flashcards for

Exam P/1
1st Edition


Alvin Soh
Outline
A&J © 2010. These flashcards were purchased by [Candidate P].


A) Combinatorial Analysis
B) Basic Probability and Set Theory
C) Conditional Probability and Bayes Formula
D) Discrete Random Variables
E) Discrete Probability Distribution
F) Continuous Random Variables
G) Continuous Probability Distribution
H) Jointly Distributed Random Variables with its Applications
I) Jensen Inequality and Chebyshev’s Inequality
J) Application of Probability in Risk Management
Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].

Distributive Law
Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].

( )
A B C AC BC =

( ) ( ) ( )
AB C AC BC =

Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].

De Morgan’s Law
Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].

1 1
C
n n
C
i i
i i
E E
= =
| |
=
|
\ .
 
1 1
C
n n
C
i i
i i
E E
= =
| |
=
|
\ .
 
Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].

Law of Total Probability
Basic Probabilities and Set Theory
A&J © 2010. These flashcards were purchased by [Candidate P].


( ) ( ) ( ) ( )
Pr Pr Pr Pr A AB AC AD = + + +
( ) ( ) ( ) ( )
n A n AB n AC n AD = + + +
Conditional Probability and Bayes Formula
A&J © 2010. These flashcards were purchased by [Candidate P].

Bayes Formula
Conditional Probability and Bayes Formula
A&J © 2010. These flashcards were purchased by [Candidate P].

( )
( )
( )
( ) ( )
( ) ( )
( ) ( )
Pr Pr | Pr
Pr |
Pr
Pr | Pr Pr | Pr
C C
AB B A A
A B
B
B A A B A A
= =
+
Discrete Random Variables
A&J © 2010. These flashcards were purchased by [Candidate P].

Characteristics of Probability Mass Function
Discrete Random Variables
A&J © 2010. These flashcards were purchased by [Candidate P].

1. ( ) Pr( ) f x X x = =
2. ( ) 0, f x x > ¬ e
3.
( ) 1
x
f x
e
=
¯



Discrete Random Variables
A&J © 2010. These flashcards were purchased by [Candidate P].

th
k
moment
Discrete Random Variables
A&J © 2010. These flashcards were purchased by [Candidate P].

( )
( )
: ( ) 0 : ( ) 0
( ) Pr
k k k
x f x x f x
E X x f x x X x
> >
= = =
¯ ¯
Discrete Probability Distribution
A&J © 2010. These flashcards were purchased by [Candidate P].

If X follows binomial distribution, find:
1. Probability Mass Function
2. Expected Value
3. Variance
Discrete Probability Distribution
A&J © 2010. These flashcards were purchased by [Candidate P].

The distribution is commonly represented by
( )
~ Bin , X n p , with
( ) ( )
Pr 1
n x
x
n
X x p p
x
÷ | |
= = ÷
|
\ .
, where
0,1,..., x n = , n and p are parameters for this distribution.
( )
E X np =
( ) ( )
1 Var X np p = ÷


Continuous Random Variable
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Transformation of Random Variables
using
“CDF” Method
Continuous Random Variable
A&J © 2010. These flashcards were purchased by [Candidate P].

( ) ( ) ( )
( )
( )
( )
1 1
Pr Pr Pr Y g X X g Y or X g Y
÷ ÷
< = < >

depending on the function,
g
Continuous Random Variable
A&J © 2010. These flashcards were purchased by [Candidate P].

Transformation of Random Variables
using
“Inverse Transformation” Method
Continuous Random Variable
A&J © 2010. These flashcards were purchased by [Candidate P].

If
( )
Y g X = ,
( )
'
0 g X > , x ¬ ethen the p.d.f of Y is
( ) ( ) ( ) ( )
'
Y X
f y f h y h y = , where
( ) ( )
1
h y g y
÷
=
Continuous Probability Distribution
A&J © 2010. These flashcards were purchased by [Candidate P].

If X follows Exponential distribution, find:
1. Probability Density Function
2. Expected Value
3. Variance
4. Moment-Generating Function
Continuous Probability Distribution
A&J © 2010. These flashcards were purchased by [Candidate P].

( )
1
, 0
0 , elsewhere
x
e x
f x
u
u
÷ ¦
> ¦
=
´
¦
¹

( )
0
1
1
x y x
F x e dy e
u u
u
÷ ÷
= = ÷
í

( )
E X u =
( )
2
Var X u =

( )
1
1
X
M t
t u
=
÷
Application of Probability in Risk Management
A&J © 2010. These flashcards were purchased by [Candidate P].

Relationship between the expected payment and the expected
payment with deductible
Application of Probability in Risk Management
A&J © 2010. These flashcards were purchased by [Candidate P].


( ) ( ) ( )
^ E X E X d E X d
+

= + ÷

whereby,

( ) ( )
0 0
^ ( ) ( )
d d
d
E X d xf x dx d f x dx S x dx
·
= + =
í í í

( ) ( ) ( )
( )
d d
E X d x d f x dx S x dx
· ·
+

÷ = ÷ =
í í
Application of Probability in Risk Management
A&J © 2010. These flashcards were purchased by [Candidate P].

Coinsurance
Application of Probability in Risk Management
A&J © 2010. These flashcards were purchased by [Candidate P].

( ) ( ) ( ) ( ) ( )
Payment 1 1 E E X E X o o = ÷ = ÷
Application of Probability in Risk Management
A&J © 2010. These flashcards were purchased by [Candidate P].