Exam P

You have what it takes to pass updated 01/14/21

GENERAL PROBABILITY
GENERAL PROBABILITY UNIVARIATE PROBABILITY
UNIVARIATE PROBABILITY *Moment Generating Function (MGF)
DISTRIBUTIONS
DISTRIBUTIONS 𝑀𝑀' (𝑡𝑡) = E[𝑒𝑒 3' ]
Basic Probability Relationships 𝑀𝑀4'56 (𝑡𝑡) = 𝑒𝑒 63 ⋅ 𝑀𝑀' (𝑎𝑎𝑎𝑎)
Pr(𝐴𝐴 ∪ 𝐵𝐵) = Pr(𝐴𝐴) + Pr(𝐵𝐵) − Pr(𝐴𝐴 ∩ 𝐵𝐵) *Learn both discrete and continuous cases 𝑀𝑀' (0) = 1
Pr(𝐴𝐴 ∪ 𝐵𝐵 ∪ 𝐶𝐶) 𝑀𝑀'57 (𝑡𝑡) = 𝑀𝑀' (𝑡𝑡) ⋅ 𝑀𝑀7 (𝑡𝑡) (independent)
= Pr(𝐴𝐴) + Pr(𝐵𝐵) + Pr(𝐶𝐶) *Probability Mass Function (PMF) 𝑑𝑑#
𝑀𝑀 (𝑡𝑡)[ = E[𝑋𝑋 # ]
− Pr(𝐴𝐴 ∩ 𝐵𝐵) − Pr(𝐵𝐵 ∩ 𝐶𝐶) − Pr(𝐴𝐴 ∩ 𝐶𝐶) ∑()) + 𝑝𝑝' (𝑥𝑥) = 1 𝑑𝑑𝑡𝑡 # ' 3$0
+ Pr(𝐴𝐴 ∩ 𝐵𝐵 ∩ 𝐶𝐶) Pr(𝑋𝑋 = 𝑎𝑎) = 0 (continuous)
Pr(𝐴𝐴! ) = 1 − Pr(𝐴𝐴) Probability Generating Function (PGF)
*Cumulative Distribution Function 𝑃𝑃' (𝑡𝑡) = E[𝑡𝑡 ' ]
Law of Total Probability (CDF) 𝑃𝑃' (𝑡𝑡) = 𝑀𝑀' (ln 𝑡𝑡)
#
𝐹𝐹' (𝑥𝑥) = Pr(𝑋𝑋 ≤ 𝑥𝑥) = ∑",+ 𝑝𝑝' (𝑖𝑖) 𝑃𝑃' (0) = 𝑝𝑝' (0)
Pr(𝐵𝐵) = . Pr(𝐵𝐵 ∩ 𝐴𝐴" ) 𝑑𝑑#
Pr(𝑎𝑎 < 𝑋𝑋 ≤ 𝑏𝑏) = 𝐹𝐹' (𝑏𝑏) − 𝐹𝐹' (𝑎𝑎) 𝑃𝑃 (𝑡𝑡)[
"$%
- 𝑑𝑑𝑡𝑡 # ' 3$0
𝑓𝑓' (𝑥𝑥) = 𝐹𝐹 (𝑥𝑥) (continuous) = 𝑝𝑝' (𝑛𝑛)
-+ ' 𝑛𝑛!
De Morgan’s Law 𝑑𝑑#
Pr[(𝐴𝐴 ∪ 𝐵𝐵)! ] = Pr(𝐴𝐴! ∩ 𝐵𝐵! ) 𝑃𝑃 (𝑡𝑡)[ = E[𝑋𝑋(𝑋𝑋 − 1) … (𝑋𝑋 − 𝑛𝑛 + 1)]
*Expected Value 𝑑𝑑𝑡𝑡 # ' 3$%
Pr[(𝐴𝐴 ∩ 𝐵𝐵)! ] = Pr(𝐴𝐴! ∪ 𝐵𝐵! ) E[𝑐𝑐] = 𝑐𝑐
.
E[𝑔𝑔(𝑋𝑋)] = ∫/. 𝑔𝑔(𝑥𝑥) ⋅ 𝑓𝑓' (𝑥𝑥) 𝑑𝑑𝑑𝑑 Percentiles
Conditional Probability . The 100𝑝𝑝th percentile is the smallest value
E[𝑔𝑔(𝑋𝑋)] = ∫0 𝑔𝑔! (𝑥𝑥) ⋅ 𝑆𝑆' (𝑥𝑥) 𝑑𝑑𝑑𝑑,
Pr(𝐴𝐴 ∩ 𝐵𝐵) of 𝜋𝜋8 where 𝐹𝐹' _𝜋𝜋8 ` ≥ 𝑝𝑝.
Pr(𝐴𝐴|𝐵𝐵) = for 𝑥𝑥 ≥ 0 and 𝑔𝑔(0) = 0
Pr(𝐵𝐵)
&
∫1 𝑔𝑔(𝑥𝑥) ⋅ 𝑓𝑓' (𝑥𝑥) 𝑑𝑑𝑑𝑑
E[𝑔𝑔(𝑋𝑋)|𝑗𝑗 ≤ 𝑋𝑋 ≤ 𝑘𝑘] = Univariate Transformation
Independence Pr(𝑗𝑗 ≤ 𝑋𝑋 ≤ 𝑘𝑘) 𝑑𝑑
Pr(𝐴𝐴 ∩ 𝐵𝐵) = Pr(𝐴𝐴) ⋅ Pr(𝐵𝐵) E[𝑐𝑐 ⋅ 𝑔𝑔(𝑋𝑋)] = 𝑐𝑐 ⋅ E[𝑔𝑔(𝑋𝑋)] 𝑓𝑓7 (𝑦𝑦) = 𝑓𝑓' [𝑔𝑔/% (𝑦𝑦)] ⋅ [ 𝑔𝑔/% (𝑦𝑦)[
𝑑𝑑𝑑𝑑
Pr(𝐴𝐴|𝐵𝐵) = Pr(𝐴𝐴) E[𝑔𝑔% (𝑋𝑋) + ⋯ + 𝑔𝑔& (𝑋𝑋)] where 𝑦𝑦 = 𝑔𝑔(𝑥𝑥) ⇔ 𝑥𝑥 = 𝑔𝑔/%(𝑦𝑦)
= E[𝑔𝑔% (𝑋𝑋)] + ⋯ + E[𝑔𝑔& (𝑋𝑋)]
Bayes’ Theorem
Pr(𝐵𝐵|𝐴𝐴& ) ⋅ Pr(𝐴𝐴& ) Variance, Standard Deviation, and
Pr(𝐴𝐴& |𝐵𝐵) = #
∑"$% Pr(𝐵𝐵|𝐴𝐴" ) ⋅ Pr(𝐴𝐴" ) Coefficient of Variation
Var[𝑋𝑋] = E[𝑋𝑋 2 ] − (E[𝑋𝑋])2
Combinatorics Var[𝑎𝑎𝑎𝑎 + 𝑏𝑏] = 𝑎𝑎2 ⋅ Var[𝑋𝑋]
𝑛𝑛! = 𝑛𝑛 ⋅ (𝑛𝑛 − 1) ⋅ … ⋅ 2 ⋅ 1 Var[𝑐𝑐] = 0
𝑛𝑛! SD[𝑋𝑋] = UVar[𝑋𝑋]
#𝑃𝑃& =
(𝑛𝑛 − 𝑘𝑘)!
CV[𝑋𝑋] = SD[𝑋𝑋]⁄E[𝑋𝑋]
𝑛𝑛 𝑛𝑛!
#𝐶𝐶& = :𝑘𝑘 ; =
(𝑛𝑛 − 𝑘𝑘)! ⋅ 𝑘𝑘!

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Discrete Distributions
PMF Mean Variance MGF PGF Special Properties
1
, 𝑎𝑎 + 𝑏𝑏 (𝑏𝑏 − 𝑎𝑎 + 1)2 − 1 𝑒𝑒 43 − 𝑒𝑒 (65%)3
Discrete Uniform 𝑏𝑏 − 𝑎𝑎 + 1 – –
𝑥𝑥 = 𝑎𝑎, 𝑎𝑎 + 1, … , 𝑏𝑏 2 12 (1 − 𝑒𝑒3 )(𝑏𝑏 − 𝑎𝑎 + 1)
𝑛𝑛
: ; 𝑝𝑝 + (1 − 𝑝𝑝)#/+ ,
Binomial 𝑥𝑥 𝑛𝑛𝑛𝑛 𝑛𝑛𝑛𝑛(1 − 𝑝𝑝) (𝑝𝑝𝑒𝑒 3 + 𝑞𝑞)# (𝑝𝑝𝑝𝑝 + 𝑞𝑞)# –
𝑥𝑥 = 0, 1, … , 𝑛𝑛
𝑚𝑚 𝑁𝑁 − 𝑚𝑚 𝑁𝑁
e: ; ⋅ : ;hi: ; , 𝑚𝑚
Hypergeometric 𝑥𝑥 𝑛𝑛 − 𝑥𝑥 𝑛𝑛 𝑛𝑛 ⋅ – – – –
𝑥𝑥 = 0, 1, … , 𝑚𝑚 𝑁𝑁

Geometric (1 − 𝑝𝑝)+/% 𝑝𝑝, 1 𝑝𝑝𝑒𝑒 3 𝑝𝑝𝑝𝑝 Memoryless

𝑥𝑥 = 1, 2, 3, … 𝑝𝑝 1 − 𝑝𝑝 1 − (1 − 𝑝𝑝)𝑒𝑒3 1 − (1 − 𝑝𝑝)𝑡𝑡 property:

𝑋𝑋: trials; 𝑌𝑌: failures (1 − 𝑝𝑝); 𝑝𝑝, 1 𝑝𝑝2 𝑝𝑝 𝑝𝑝 (𝑋𝑋 − 𝑎𝑎|𝑋𝑋 > 𝑎𝑎) ~ 𝑋𝑋
− 1
𝑋𝑋 = 𝑌𝑌 + 1 𝑦𝑦 = 0, 1, 2, … 𝑝𝑝 1 − (1 − 𝑝𝑝)𝑒𝑒3 1 − (1 − 𝑝𝑝)𝑡𝑡 (𝑌𝑌 − 𝑎𝑎|𝑌𝑌 ≥ 𝑎𝑎) ~ 𝑌𝑌
𝑥𝑥 − 1 < <
w x 𝑝𝑝 (1 − 𝑝𝑝)+/< , 𝑟𝑟 𝑝𝑝𝑒𝑒 3 𝑝𝑝𝑝𝑝 <
Negative 𝑟𝑟 − 1 y z w x
𝑝𝑝 1 − (1 − 𝑝𝑝)𝑒𝑒3 1 − (1 − 𝑝𝑝)𝑡𝑡
Binomial 𝑥𝑥 = 𝑟𝑟, 𝑟𝑟 + 1, 2, … 1 − 𝑝𝑝 Neg Bin(𝑟𝑟 = 1, 𝑝𝑝) ~
𝑟𝑟 w 2 x
𝑋𝑋: trials; 𝑌𝑌: failures 𝑦𝑦 + 𝑟𝑟 − 1 < 𝑟𝑟
𝑝𝑝 < < Geometric(𝑝𝑝)
w x 𝑝𝑝 (1 − 𝑝𝑝); , 𝑝𝑝 𝑝𝑝
𝑋𝑋 = 𝑌𝑌 + 𝑟𝑟 𝑟𝑟 − 1 − 𝑟𝑟 w x w x
𝑝𝑝 1 − (1 − 𝑝𝑝)𝑒𝑒3 1 − (1 − 𝑝𝑝)𝑡𝑡
𝑦𝑦 = 0, 1, 2, …

𝑒𝑒 /= ⋅ 𝜆𝜆+ Sum of independent

, =>? ! /%@ =(3/%)
Poisson 𝑥𝑥! 𝜆𝜆 𝜆𝜆 𝑒𝑒 𝑒𝑒 Poissons ~ Poisson
𝑥𝑥 = 0, 1, 2, … (𝜆𝜆 = ∑#"$% 𝜆𝜆" )

Continuous Distributions

PDF CDF Mean Variance MGF Special Properties

1
Continuous , 𝑥𝑥 − 𝑎𝑎 𝑎𝑎 + 𝑏𝑏 (𝑏𝑏 − 𝑎𝑎)2 𝑒𝑒 63 − 𝑒𝑒 43 (𝑋𝑋|𝑋𝑋 > 𝑐𝑐) ~ Uniform(𝑐𝑐, 𝑏𝑏)
𝑏𝑏 − 𝑎𝑎
Uniform 𝑏𝑏 − 𝑎𝑎 2 12 𝑡𝑡(𝑏𝑏 − 𝑎𝑎) (𝑋𝑋 − 𝑐𝑐|𝑋𝑋 > 𝑐𝑐) ~ Uniform(0, 𝑏𝑏 − 𝑐𝑐)
𝑎𝑎 ≤ 𝑥𝑥 ≤ 𝑏𝑏
1 /+
𝑒𝑒 A , + 1 Memoryless property:
Exponential 𝜃𝜃 1 − 𝑒𝑒 /A 𝜃𝜃 𝜃𝜃 2
1 − 𝜃𝜃𝜃𝜃 (𝑋𝑋 − 𝑎𝑎|𝑋𝑋 > 𝑎𝑎) ~ 𝑋𝑋
𝑥𝑥 > 0
B/%

𝑥𝑥 B/% + 1 − . Pr(𝑌𝑌 = 𝑘𝑘) , B Sum of 𝛼𝛼 independent

⋅ 𝑒𝑒 /A , 1
Gamma Γ(𝛼𝛼) ⋅ 𝜃𝜃 B &$0
+
𝛼𝛼𝛼𝛼 𝛼𝛼𝜃𝜃 2 w x exponentials(𝜃𝜃) ~
𝑥𝑥 > 0 𝑌𝑌 ~ Poisson:𝜆𝜆 = ;, 1 − 𝜃𝜃𝜃𝜃 Gamma(𝛼𝛼, 𝜃𝜃)
A
𝛼𝛼 = 1, 2, 3, …

Symmetry:
(+/C)" 𝑋𝑋 − 𝜇𝜇 Pr(𝑍𝑍 ≤ 𝑧𝑧) = Pr(𝑍𝑍 ≥ −𝑧𝑧)
1 / 𝑍𝑍 =
⋅ 𝑒𝑒 2D" , 𝜎𝜎 D"3 " Pr(𝑍𝑍 ≤ −𝑧𝑧) = Pr(𝑍𝑍 ≥ 𝑧𝑧)
Normal 𝜎𝜎√2𝜋𝜋 𝜇𝜇 𝜎𝜎 2 𝑒𝑒 C35 2

−∞ < 𝑥𝑥 < ∞ Pr(𝑍𝑍 ≤ 𝑧𝑧) = Φ(𝑧𝑧) Sum of independent normals ~
Normal_𝜇𝜇 = ∑#"$% 𝜇𝜇" , 𝜎𝜎 2 = ∑#"$% 𝜎𝜎"2`

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MULTIVARIATE PROBABILITY Independence Bivariate Continuous Uniform
MULTIVARIATE PROBABILITY
DISTRIBUTIONS 𝐹𝐹',7 (𝑥𝑥, 𝑦𝑦) = 𝐹𝐹' (𝑥𝑥) ⋅ 𝐹𝐹7 (𝑦𝑦) 1
DISTRIBUTIONS 𝑓𝑓',7 (𝑥𝑥, 𝑦𝑦) =
𝑓𝑓',7 (𝑥𝑥, 𝑦𝑦) = 𝑓𝑓' (𝑥𝑥) ⋅ 𝑓𝑓7 (𝑦𝑦) Area of domain
Area of region
*Learn both discrete and continuous cases E[ℎ(𝑋𝑋) ⋅ 𝑘𝑘(𝑌𝑌)] = E[ℎ(𝑋𝑋)] ⋅ E[𝑘𝑘(𝑌𝑌)] Pr(region) =
Area of domain
𝑀𝑀',7 (𝑠𝑠, 𝑡𝑡) = 𝑀𝑀' (𝑠𝑠) ⋅ 𝑀𝑀7 (𝑡𝑡)

*Joint PMF and CDF Cov[𝑋𝑋, 𝑌𝑌] = 0 Bivariate Normal
∑()) + ∑()) ; 𝑝𝑝',7 (𝑥𝑥, 𝑦𝑦) = 1 𝜌𝜌',7 = 0
For 𝑋𝑋 ~ Normal(𝜇𝜇' , 𝜎𝜎' 2 ) and
𝐹𝐹',7 (𝑥𝑥, 𝑦𝑦) = ∑F,+ ∑3,; 𝑝𝑝',7 (𝑠𝑠, 𝑡𝑡) 𝑌𝑌 ~ Normal(𝜇𝜇7 , 𝜎𝜎7 2 ),
𝐹𝐹',7 (𝑥𝑥, ∞) = 𝐹𝐹' (𝑥𝑥) *Joint MGF
𝐹𝐹',7 (∞, 𝑦𝑦) = 𝐹𝐹7 (𝑦𝑦) 𝑀𝑀',7 (𝑠𝑠, 𝑡𝑡) = E[𝑒𝑒 F'537 ] (𝑌𝑌|𝑋𝑋 = 𝑥𝑥) ~ Normal
G" G
𝐹𝐹 (𝑥𝑥, 𝑦𝑦) = 𝑓𝑓',7 (𝑥𝑥, 𝑦𝑦) (continuous) E[𝑋𝑋] = 𝑀𝑀',7 (𝑠𝑠, 𝑡𝑡)ç where
G+ G; ',7 GF F$3$0
G
𝑥𝑥 − 𝜇𝜇'
E[𝑌𝑌] = G3 𝑀𝑀',7 (𝑠𝑠, 𝑡𝑡)ç E[𝑌𝑌|𝑋𝑋 = 𝑥𝑥] = 𝜇𝜇7 + 𝜌𝜌 ⋅ 𝜎𝜎7 w x
F$3$0 𝜎𝜎'
*Marginal Distributions and
E[𝑋𝑋 I 𝑌𝑌 # ] =
G#$%
𝑀𝑀',7 (𝑠𝑠, 𝑡𝑡)ç Var[𝑌𝑌|𝑋𝑋 = 𝑥𝑥] = 𝜎𝜎7 2 (1 − 𝜌𝜌2 )
Conditional Distributions GF # G3 % F$3$0
𝑝𝑝' (𝑥𝑥) = ∑()) ; 𝑝𝑝',7 (𝑥𝑥, 𝑦𝑦) 𝑀𝑀',7 (𝑡𝑡, 𝑡𝑡) = 𝑀𝑀'57 (𝑡𝑡)
Expectation and Variance for Sum and
𝑝𝑝7 (𝑦𝑦) = ∑()) + 𝑝𝑝',7 (𝑥𝑥, 𝑦𝑦) Average of I.I.D. Random Variables
𝑝𝑝'|7 (𝑥𝑥|𝑌𝑌 = 𝑦𝑦) = 𝑝𝑝',7 (𝑥𝑥, 𝑦𝑦)⁄𝑝𝑝7 (𝑦𝑦) Multivariate Transformation 𝑆𝑆 = 𝑋𝑋% + ⋯ + 𝑋𝑋#
𝑓𝑓J&,J" (𝑤𝑤% , 𝑤𝑤2 )
𝑋𝑋ò = [𝑋𝑋% + ⋯ + 𝑋𝑋# ]⁄𝑛𝑛
*Joint Expected Value and = 𝑓𝑓'&,'" [ℎ% (𝑤𝑤% , 𝑤𝑤2 ), ℎ2 (𝑤𝑤% , 𝑤𝑤2 )] ⋅ | 𝐽𝐽|
Conditional Expectation where E[𝑆𝑆] = 𝑛𝑛 ⋅ E[𝑋𝑋" ]
E[𝑔𝑔(𝑋𝑋, 𝑌𝑌)] 𝑥𝑥% = ℎ% (𝑤𝑤% , 𝑤𝑤2 ) E[𝑋𝑋ò] = E[𝑋𝑋" ]
. .
= ∫/. ∫/. 𝑔𝑔(𝑥𝑥, 𝑦𝑦) ⋅ 𝑓𝑓',7 (𝑥𝑥, 𝑦𝑦) 𝑑𝑑𝑑𝑑 𝑑𝑑𝑑𝑑 𝑥𝑥2 = ℎ2 (𝑤𝑤% , 𝑤𝑤2 ) Var[𝑆𝑆] = 𝑛𝑛 ⋅ Var[𝑋𝑋" ]
. 𝜕𝜕𝑥𝑥% 𝜕𝜕𝑥𝑥% Var[𝑋𝑋ò] = (1/𝑛𝑛) ⋅ Var[𝑋𝑋" ]
E[𝑋𝑋|𝑌𝑌 = 𝑦𝑦] = ∫/. 𝑥𝑥 ⋅ 𝑓𝑓'|7 (𝑥𝑥|𝑌𝑌 = 𝑦𝑦) 𝑑𝑑𝑑𝑑
𝜕𝜕𝑤𝑤% 𝜕𝜕𝑤𝑤2
𝐽𝐽 = êê ê
𝜕𝜕𝑥𝑥2 𝜕𝜕𝑥𝑥2 ê
Double Expectation and Central Limit Theorem
𝜕𝜕𝑤𝑤% 𝜕𝜕𝑤𝑤2
Law of Total Variance The sum or average of a large number of

independent and identically distributed
E[𝑋𝑋] = EáE[𝑋𝑋|𝑌𝑌]à Multinomial Distribution
(i.i.d.) random variables approximately
Var[𝑋𝑋] = EáVar[𝑋𝑋|𝑌𝑌]à + VaráE[𝑋𝑋|𝑌𝑌]à Pr(𝑋𝑋% = 𝑥𝑥% , … , 𝑋𝑋& = 𝑥𝑥& )
follows a normal distribution.
𝑛𝑛!
= ⋅ 𝑝𝑝 +& ⋅ … ⋅ 𝑝𝑝& +'
Covariance and Correlation Coefficient 𝑥𝑥% ! ⋅ … ⋅ 𝑥𝑥& ! %
Order Statistics
Cov[𝑋𝑋, 𝑌𝑌] = E[𝑋𝑋𝑋𝑋] − E[𝑋𝑋]E[𝑌𝑌] E[𝑋𝑋" ] = 𝑛𝑛𝑝𝑝"
𝑋𝑋(%) = min(𝑋𝑋% , 𝑋𝑋2 , … , 𝑋𝑋# )
Cov[𝑎𝑎𝑎𝑎, 𝑏𝑏𝑏𝑏] = 𝑎𝑎𝑎𝑎 ⋅ Cov[𝑋𝑋, 𝑌𝑌] Var[𝑋𝑋" ] = 𝑛𝑛𝑝𝑝" (1 − 𝑝𝑝" )
𝑋𝑋(#) = max(𝑋𝑋% , 𝑋𝑋2 , … , 𝑋𝑋# )
Cov[𝑋𝑋, 𝑋𝑋] = Var[𝑋𝑋] Cová𝑋𝑋" , 𝑋𝑋1 à = −𝑛𝑛𝑝𝑝" 𝑝𝑝1 , 𝑖𝑖 ≠ 𝑗𝑗

Var[𝑎𝑎𝑎𝑎 + 𝑏𝑏𝑏𝑏] = 𝑎𝑎2 Var[𝑋𝑋] + 𝑏𝑏2 Var[𝑌𝑌]
For i.i.d. random variables,
+ 2𝑎𝑎𝑎𝑎 ⋅ Cov[𝑋𝑋, 𝑌𝑌]
𝑆𝑆'(&) (𝑥𝑥) = [𝑆𝑆' (𝑥𝑥)]#

Cov[𝑋𝑋, 𝑌𝑌] 𝐹𝐹'(%) (𝑥𝑥) = [𝐹𝐹' (𝑥𝑥)]#
𝜌𝜌',7 = Corr[𝑋𝑋, 𝑌𝑌] =
UVar[𝑋𝑋]UVar[𝑌𝑌]

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INSURANCE AND RISK MANAGEMENT INSURANCE AND RISK MANAGEMENT

Category Definition of Payment, 𝒀𝒀 𝐄𝐄[𝒀𝒀]
.
0, 𝑋𝑋 ≤ 𝑑𝑑 ∫- (𝑥𝑥 − 𝑑𝑑) ⋅ 𝑓𝑓' (𝑥𝑥) 𝑑𝑑𝑑𝑑 For exponential:
Deductible 𝑌𝑌 = ü .
𝑋𝑋 − 𝑑𝑑, 𝑋𝑋 > 𝑑𝑑 ∫- 𝑆𝑆' (𝑥𝑥) 𝑑𝑑𝑑𝑑 𝜃𝜃 ⋅ Pr(𝑋𝑋 > 𝑑𝑑)

K
𝑋𝑋, 𝑋𝑋 < 𝑢𝑢 ∫0 𝑥𝑥 ⋅ 𝑓𝑓' (𝑥𝑥) 𝑑𝑑𝑑𝑑 + 𝑢𝑢 ⋅ 𝑆𝑆' (𝑢𝑢) For exponential:
Policy Limit 𝑌𝑌 = †
𝑢𝑢, 𝑋𝑋 ≥ 𝑢𝑢 K
∫0 𝑆𝑆' (𝑥𝑥) 𝑑𝑑𝑑𝑑 𝜃𝜃 ⋅ Pr(𝑋𝑋 < 𝑢𝑢)

Deductible and Policy Limit 0, 𝑋𝑋 ≤ 𝑑𝑑 -5K

(𝑥𝑥 − 𝑑𝑑) ⋅ 𝑓𝑓' (𝑥𝑥) 𝑑𝑑𝑑𝑑 + 𝑢𝑢 ⋅ 𝑆𝑆' (𝑑𝑑 + 𝑢𝑢)
∫- For exponential:
(𝑢𝑢 is the policy limit/ 𝑌𝑌 = ¢𝑋𝑋 − 𝑑𝑑, 𝑑𝑑 < 𝑋𝑋 < 𝑑𝑑 + 𝑢𝑢 -5K
𝑢𝑢, 𝑋𝑋 ≥ 𝑑𝑑 + 𝑢𝑢 ∫- 𝑆𝑆' (𝑥𝑥) 𝑑𝑑𝑑𝑑 𝜃𝜃 ⋅ Pr(𝑑𝑑 < 𝑋𝑋 < 𝑑𝑑 + 𝑢𝑢)
maximum payment)

Unreimbursed Loss, 𝒁𝒁
If 𝑋𝑋 is the loss and 𝑌𝑌 is the payment (i.e. reimbursed loss), then 𝑋𝑋 = 𝑌𝑌 + 𝑍𝑍 ⇒ 𝑍𝑍 = 𝑋𝑋 − 𝑌𝑌, and E[𝑍𝑍] = E[𝑋𝑋] − E[𝑌𝑌].

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