Exampte 1A. For the gamma distribution, as defined in the Loss Models Appendix:? 4). 1. Calculate the coefficient of variation. 2. Calculate the skewness. 3. Calculate the limit of the kurtosis as a 00. 4, IfX has a gamma distribution with a =5 and @ = 0.1, calculate Efe*]. Re becdficient of \anahion = om K | aCtk=1) (a pk _ aA = Noe = JE) -EKT NookOx = Ol Cxti-) = x@ oud Ecxed= ot(ate-) (oti) =e wer) feos Yerjaet —ke = [oe awe ato - Jeez = se lb. tN= Jeo = Se SL xO a Joe" 9) Stns BEC BCC uJ I2ECx 1-3 Jur ed a(e43-1)Ca+2-1 Va) F-sLlereDa) F Jno [Cote Cat) len 3 Can et + 2.23 oF 200? and P= Ta = we 2» SKpmens = gg? = 2K = 2 Weg? He Jon! 3) Kurdosiss ECCT gs a> 0 ot 4 +6ECx* 1 uta ul 4 ro -Luta06 £ dtc: >] ee NGe®e = 2)44 (ery lars1) Gch -) Ce} oY! = eee sidGect o))4 6 Geti) Cod et! - secttall+ (cts )(nt2)(ocr) Get Pfacte owt 0} otz(acyel - tet ° Sine woe mbly nord Yeo bigh st dugree hov-Zewe ter:RE Ya ed po) +6 act oud Baty Leet sate) (x?4e0) > Yee yd ged gate aa HOt ae pot ps3 sc ba Hace Coffcietef ats = yHt3=0 (ooffcieaadal a3: —U- 846414520 Cochh cmbok ot: 34546 -B] Fiten Kuabosis = nen aocreece = 22 + $8 - 40s Dea a2 7 Ae yy a ~ e2S = 0, are: ECe™] Prone tole s - Ths i ‘ a M (i)=t- 0G os oe Ele fe re.( EY ot os ee eke Up i Sepa) _ leFxT) =f te Code c(') (Fey ole dx daw 4 PG) Jo as, Lt oe. oo and o=7 ce) =f fea [- enx'ty). s2y a2 Oo \s 4 lo o ¥ t =|) feu xt eo “dx-(7) Lig tees) {z) ‘coverage, claim size follows a two-parameter Pareto distribution with parame- _ ExamPLe 1B Foran autolial ters @ = 10,000 and a. Median claim size is 5000, Determine the probability ofa claim being greater than 25,000. yy so FGen RE la X= 1.40951 Now, the prob ofa being qreater Hornrscnm is 1 Flasem) = SC25pe0) 6, tone L.Jowt In PL om) =1-C-{2) (=) =0,13-46Exampte 1D There are two types of actuarial students, bright and not-so-bright. The bright ones pass 80% of the exams they take and the not-so-bright ones pass 40% of the exams they take. All students start with Exam 1 and take the exams in sequence, and drop out as soon as they fail one exam. An equal number of bright and not-so-bright students take Exam 1 Determine the probability that a randomly selected student taking Exam 3 will pass. Applejec, toe Laat Total Pobabilihy PCshudent tole, Clin . © Coals proto tod tudes tol exewm Zarpen that i) sladudis briqnd if) shuclouk wotbright hat Zy bo S Fi LZ is notte auc! E |hedle event of tudrg exon 3 By Bayer Teor New PCL ie) = PCEIT) 0 Cr and PUL, (E) = PCEIE,) CZ) PE) Pce) Tus PCE)= PCE/ x, eC, + PCEIT,) + PCZ,) Pole prenar 3 if bvighk) = PCpass hint how ~exorms) = 0 .€ 4 OF = 0.64 PEI E nobso bight) = 0.440.450, = PCEIL,) Also PLE )~ PCT) ~0.5 7 PCE) Fe.64\bo.S) He sG)lo.5) = News [PLZ |= 064 * 05 = 0.8 od P(Z, IE) = o.texeo.5 = PEE) oy Sa Lot Phedhe event thet deduct pased born 2 Applying lawel Total Prob pCPIE) 4 PCP] Zomdl)-P (ze) -? (PIT, ede) - PCr) 4@ 2.9) tou Co .2)s0.42 — ExampLe 1E Claim sizes follow an exponential distribution with mean 0. ‘The parameter 0 varies by insured. Over all insureds, @ has a distribution with the following density function: 1 f= 53 1 S0<00 —} Calculate the probability that a claim from a randomly selected insured will be greater than 0.5. ~ Exe (eo) hk Jaden sina seRTE. P OX?0.5) Now 6 | clown ~ Exple)) = P0X>0.5 \X~Fxp @)) =1- Flos le) = 1-fi neve ae ees) plX0,s)— F -os/e [/ a" ote ?| ye rle}do 7 q =2(- ef = 2(1~0,60@53\ = 0.7869 4 a thee See Tage loom Panes AishabusbionExapte IF Calculate the third raw moment of a negative binomial distribution with parameters r and 8. Pom Tables P= O- pea) “tr cob! CCPC CCN GC Meayy = erti=F*r ener Nso OY G)=€CX(e- 6-2) = EDF]-3 EDT 2 EK BOs C= -r[1-PGI Ga), So CX PCP a 28* Grom Hdotes=> + BCI) Seb DX ar (la DP Le By PF) ab _ ExamPLe 1G You are given the sample 1, 1, 2,3, 5. = Calculate: — 1. The empirical mean. = , x _ 2. The empirical variance. iy ~ 3, The empirical skewness. — 4, The empirical 80th percentile. 5. The empirical probability generating function. DE mpi cal tern= CE) +2ls)+3(4)+ s(4) = FF = Fz, cose. o3 > (ray =), P3019 4) Empitcal go'k 2, y 2c 5. $ POX 620 Soy Ave PX éx)203 5) TheRppincad PoP: PC2)= ELE*S= Gy) 2!oa) ei elale teatpat 30 Lesson Ong Exonises — 1.1, ‘The random variable X is a mixture of an exponential distribution with mean 5, with weight 2, and ar __ inverse exponential distribution with @ = 5, with weight }. Let H(x) be the cumulative hazard function of X. Calculate H(3). Miclue 1) Exp C5) SH ethic ©) Daw Rep Co=s)ie/ “Furralhing Nar Sho =~ 30e FEC 2) Als» Ce) | SCa) = Ps) (1-0) = 1S) =~ eS =- In le) es (1-2) = - In 6 yan) = 0.4522 1.2. The random variable X has a uniform distribution on {0,1}. Let h(x) be its hazard rate function. _ Calculate h(0.75). Neo Fe Recadt | SQc) t T oo 2 kG). T5e so h(oas= Teas: *as=y 1.3. Fora random variable X you are given that * The mean is 4. _ © The variance is 2. * The raw third moment is 3. Determine the skewness of X, Skoumprs:, BECK)? J = COGdy ondVe-[x]=-EOCI- EXT ade oed 2 =EDe1- 4* 1S =ECX*]ECC) SEL (xt 2207 peo K-09) Ss EC x31 600 2x ECT +xEXT - EEX J?) 16k J=ebe]-3gye] 42 =3.- aCig ly +o (uy). -¥S ods (ys oF _ =¥s _thng Skpowens = 9 TE = - 20.05 ~ 1.4, Arandom variable X has a gamma distribution with parameters a =2, 8 = 100. Determine the kurtosis of X. kuevtosi ua ‘ a ‘ ELOY se CO Cx) Sa PO y EOC ee DLL st EOY I loot Coty) (23) (242) Cen) = 0" Cire) EOP boo (aes re) Capi) =t00? (ou) EO T= hoot Cote Neti) we (6) EL Isla ~t0e (21-0) PEt AQT = 0 8tre) 4 Co Cau Lre l(a) 46 CANE) Got e)~ 3 C1o*9) 10? G20 uw) telah (4) 30) coy ot Ube fPs (104 (6) -[e?@)3*)*= Cot. 6 - 200°] * (eo ce Ho ove I = So Kurdofis = 24-0 6 2epeo — 1.5. [4B-S93:34] (1 point) Claim severity has the following distribution: Claim Size Probability 100 0.05 Si 200 0.20 -, 300 0.50 400 0.20 SI 500 0.05 ~~ Determine the distribution’s skewness. (A) -0.25 (B) 0 (©) 0.15, (D) 0.35 ___(E) Cannot be determined The disludion ic so Skoumoss =0(B) OR EW.) 3s 0,05 Cen sen)? 0.2 Gop —300) Hos C3e0- ge) "ho. 2 ues 00)” 7 +0,05C sem 1e0)7=0 Met Se seater is goon SF <01.6, [4B-F98:27] (2 points) Determine the skewness of a gamma distribution with a coefficient of variation ofl. Hint: The skewness of a distribution is defined to be the third central moment divided by the cube of the standard deviation. (ayo @) 1 oz (D4 6 _Corfhantol Vorctiors b= ao ancl MEK S= 8 fet = = eee OtJad Cate lars 0% lop) reNarl= otlar)a~ Cols certeta ote ote sa So |= (Sete! - © Sx sm ay =>) SRS) =) eal ere Do me See -£ Eb? I~ sept) wp 2ud se C13 ie a) 2 ay FAG)O- {LIC + St 2 PoP aG0?- Got O)s 2 ve -@e"= )- 26ers) 3) 3, 34 (ora) = (9? )%= o hus Skebmosss 293 = 2 a> 1.7, [4B-S95:28] (2 points) You are given the following: + Forany random variable X with finite first three moments, the skewness of the distribution of X is denoted SKA). ‘+ X and ¥ are independent, identically distributed random variables with mean = 0 and finite second and third moments. ‘Which of the following statements must be true? 1, 2Sk(X)=Sk(2X) 2. -Sk(Y)=SkK(-¥) 3. |Sk(X)] 2 |SK(X+ ¥)] we (B) 3 © 12 (D) 2,3 (E) None of A, B, C, or D I is Cals, Seoumors is dimonsimloss 1 dewshing ary has ne elle on sreuones Z is bw Neg trnoy cu negate she wmnovater w/o abled rgtne, Yonominadsr as i Mts positive. sstwelhs more idvahical evs qeh added toaelloy, the dish Joulion bosomes ore arnt mme normal Currore hononass = 0 1.8, [48-80721) @ points) You are given the following: ~~ «Both the mean and the coefficient of variation of a particular distribution ae 2 standard deviation, + The hid moment ofthis distibution about the origin is 136. Determine the skewness of this distribution. int: The skewness of a distribution is defined tobe the third central moment divided by the cube ofthe. win win @) wa aSkkounes Weare (Nas v Jo ond naa 4, Far 264 garde? Nar =t6 = Cs)" =6y = ETC?) = EOF I-53 FOI oe cu cy ier EOCJ=1 me (XO = Ext = ah Noe CX) + uh = EOC} = 16+ Fs 20 loners = 136- 3C20)(2)+2GY = 32 = 4 @y ey = —— 1,9, [4-01:3] You are given the following times of frst claim for five randomly selected auto insurance policies observed from time ¢=0: Calculate (A) 00 1203 4 5 the kurtosis ofthis sample. @) 05 (17 () 34 ©) 68 =z A Plex Norse? Efex) Loali-sH6 Naseer GROG Pods) ty bore ECOL) 5 New EDT -(0.2)( 8 Ho.2)Cr-s) #6.2)6-4) + Gs) os Cy-24+G-s)" = ¢ So Kuolis = 6-8 = 1. 2 1.10. [4B-$97:24] (2 points) The random variable X has the density function 4} (x)= ate Ta << Determine the mode of X. THis '50 Burr Ashibulon of You ot=1 ond O=\ — ) 0 __ (B)_ Greater than 0, but less than 0.25 _ (© Atleast 0.25, but less than 0.50 — @)_ Atleast 0.50, but less than 0.75 (E) Atleast 0.75 om ~ L1,_[8+F01:37] For watches produced by a certain manufacturer: (Lifetimes folow a single-parameter Pareto distribution with «> Land =4, (The expected lifetime ofa watch is 8 years. Caleulae 044 the probability thatthe lfetime ofa watch isa least 6years. 8) 050 (© 056 061 067Focox single Recmakr Rowelo’, £X'Je Wem diuen Fixt=tado-y 7! sea@Cy)] =¥ =) yu Fa-F =) ~-UX>-F =) KZ 1 | Uk rep webel (feline z 4 PC KG) == POxe@) =-F@)=S@) 5 Pe) EP Lt :et- Th-4]e & let l-aJ= 4 o.uy ~~ 1.12, [4B-F99:29] (2 points) You are given the following: Ais a random variable with mean 5 and coefficient of variation 1, Bis arandom variable with mean 5 and coefficient of variation 1, Cis arandom variable with mean 20 and coefficient of variation 1/2. A, B, and C are independent. ° X=A+B. — + Y=A+e. — Determine the correlation coefficient between X and Y. (A) -2/v10 (B) -1/V10 jo @) 1/V10 © 2/v10 At =s and B= o,= 5 Se of Vert) =25 Be. and & 1 3 LeorgsS Seo =Var(B)= 2s Ciudad Seek 2) Bek sone % ote ver(a ow Com (XY) = CovCx,y) = Cor Lara dl) Now eCh CBD = Vor Auer) + (AVY favre 254 5) SNe VerO)) War cai Varta Veccacs)= = )Vowajruadt) = Seen = Se 446 Naan |= = Sua Wark) = Sisto = Sas fe tne NB and C eure « indopomdont Kiso cov(Cats) t1e)= Gua, 0) lula) + (wlB,a)} Gu (8,0 -Verhto toro =2! Ths pl= Cone (xy) =_25 sas =) Tgrtas sje jo @® 1.13, [CAS3-F03:17] Losses have an Inverse Exponential distribution. The mode is 10,000. Calculate the median. (a) ®) © () ®) Less than 10,000 Atleast 10,000, but less than 15,000 Atleast 15,000, butless than 20,000 Atleast 20,000, but less than 25,000 At least 25,000(rime fabsd morte for Trnese Renee 2 © =e Pe=rsu0 Mso makin, Pum n0 5 ly dabnitionr. ce (Frnmlobiasl Fldse DPladebis = ~27/m Leet, _preoy acre, e =lnos=Ine = nos = HA ay mee) v =23 S54 ([no.S m= — orp =) m= - 26000. 2283539 —— 1.14, [CAS3-F03:19] For a loss distribution where x > 2, you are given: — The hazard rate function: h(x)=z?/2x, for x > 2 (ii) A value of the distribution function: F(5) =0.84 Calculate z. (A) 2 (B) 3 (C4 ()5 (E) 6 Recall Sth)= SF haddie 19 S 35 de LWbuswe dye e BO. de ady (Sue = (fag 425 2 ns Deed, ai) Weer quen P=0.84 So S@I= EPG@=I- BHO —— so.t6-| -FInles) > o= Th) 9 22) * ~ alone) = & “WG f = = => z2 Gy ® ~ 1.15. A Pareto distribution has parameters a =4 and 6 =1. Determine its skewness. (A) Less than 7.0 (B) Atleast 7.0, but less than 7.5 (C) At least 7.5, but less than 8.0 (D) Atleast 8.0, but less than 8.5 (E)__ Atleast 8.5 Fn to ED*]=- 0%! _ EDed = Fal le) “f= ) Gicy-Yl4~ > ‘ne = eck -uP) = COOI-sEKt ate Eee) s2 oF o Gay.) © a+ -BF4-7 EoJ- sh a4 aVvo 5 we 3 Thess Sheonpr= 1-3 CE?) 5 cau © me1,16. [CAS3-S04:28] A pizza delivery company has purchased an automobile liability policy for its delivery drivers from the same insurance company for the past five years, The number of claims filed by the pizza delivery company as the result of at-fault accidents caused by its drivers is shown below: Sj Year [| Claims — 2002 [4 I 2001 1 i - 2000 [3 + 1999 | 2 7 1998 [15 : — Caleulfte the skewness of the empirical distribution of the number of claims per year. -— — (A) Less than0.50 — (B) Atleast 0.50, but less than 0.75, (C) Atleast 0.75, but less than 1.00 — (D) Atleast 1.00, but less than 1.25 — (6)_Atleast 1.25 POs) = (5) Shounen = EC Or uP I~ EGP 7-3 FOI EDS o oe EC]: uy. He CD CFO GHOSE). as £071 WD. OOWG OME Ecet= UC) GYG)G)+2G) 9 = Nar OQ) =e = 51-6y Ko. =@s-3G0G)+2(s)? (eee SI 26 SP — 1.17, [CAS3-Fo4:28] A large retailer of personal computers issues a warranty contract with each computer that it sells. The warranty covers any cost to repair or replace a defective computer within the first 30 days of ~ purchase. 40% of all claims are easily resolved with minor technical help and donot involve any cost to replace or __ repair. Ifa claim involves some cost to replace or repair, the claim size is distributed as a Weibull with parameters 1=1/2and 8 =30, ~~ Which of the following statements are true? ;-— __ 1. The expected cost of a claim is $60. 2. The survival function at $60 is 0.243. — 3, The hazard rate at $60 is 0.012, — —{A) Lonly. (B) Zonly. (© 3only, (D) land2only. (BE) 2and3only, = +2z)= Recah [Gd~ (7% £7" e-*dd so (1G) so- 4 du da4 oCtGr*)-f-e 4) =Ce*) i alte tee LA ate* @Telo- Le Wy-2b)etee I~ -C- 2] =2 4 of (3) = 300)=60 However isauol of ing aan So ofa dain is loss tom Goie o.6(éo0) so 215 folso Tha suit len) = 1= Hoo) = (i= oh as so the uo £ ad Cale 2.3) lyase tig ren ysolag? Luabh H hortowd tale Lon the) ees eh(go ES Le at Oni2 = 2881985 = Sy ze wt =r oe). 4 oot. os ae Co Go 30% ot Jerse To. 60/. Idy of acoshoflects Rel ond: atl Rens cane malty byo.G0 sikco. ° dh of a The, Wee Oe th: melas rh Loui henarel 2.6.i¢ 2.6 (6G) ~ 1.18. You are given for the random variable X: @ Elx}=3 Var OX) = EL = CX Gi), Var(X)= 100 ~ ne Gi) BEX?) = oot a= FI Calculate the skewness of X, (A) Less than—1 (B) Atleast —1, but less than —0.5 ~ (D) Atleast 0, but less than 0.5 — (E) Atleast 0.5 (C) Atleast —0.5, but less than 0 SKusrons o3 = -0.817®@ = o Gooy* LED Cx-a)?) = BC 1-3 Ex] te? = 30-3 Cioo 1a)G)p2L3)1.19. You are given the following: JaC pdf ui + Xisazandom variable with probability density function ro)=(#) (2)"" x>B,a>0,B>0 © BIX]=7500. x teat ewer epee oo 7 mies * Bye resnureee 5 + E[X2]=75,000,000. or Fs * mis the median of X. ear | , Singple peereneber- Determine the value of f(m). = i) ce w/e." ——————— (A) Less than 0.00020 28 _4500() _ (B)_ Atleast 0.00020, but less than 0.00025 EKITS ~E, (C) Atleast 0.00025, but less than 0.00030 FOX" =" sop0,00 = a P* (2) ~ (D) At least 0.00030, but less than 0.00035 aA-2 ~— (BE) Atleast 0.00035 _Facoma_ (SY | p= 4500 (a) = B= 4500) sh, into @ a bos eC SBD ol psoox- +550) mee (F900%- #520) FS poof A-2 EE xt D215 P00 on0 & = 150,000,409 = 56250,000%" - 11 2 Soapos &< 56,250 e280 DFS, 009, cow *~ |$q.002 060 x =56,259, 000%" ~ |/2,500,conn +56 ooo =) |%jF50 800 x - 3%, 500,204 - 56,150 000 =0 suet 27-3750 H = 20 we Thess fie, Pros BSG=P bee 3 35RD, B, dofinifion oft au FOrleo,5 ond Pamtair ROS= {SY Memes 294 Pm) = -o,s2- > o F130 (sooo) = & Aa! = 0,2002381074 (8)bh 1.20, [4-F00:32] You are given the following for a sample of five observations from a bivariate distribution: o LY Yordonsd Zz 3 4 4 6 2 4 5 6 (i) #=36,p=38. Ais the covariance of the empirical distribution F, as defined by these five observations. Bis the maximum possible covariance of an empirical distribution with identical marginal distributions to Determine B—A. (A) 09 ®) 1.0 Ou ) 12 © 13 To maximite Yoe corasane oF the emyin ah dishidoudion, Yur ys Should be in [is Some ordi as \the x A= CY ty)e(2 2) QO QO) OW) =1y ad B- OO) WG) 0) = +) le)= g0 Tus bl 4 = 0-74-12 © = 1.21, {CAS3-F04:24] A pharmaceutical company must decide how many experiments to run in order to maxi- ~ mize its profits. Le pal ya * The company will receive a grant of $1 million if one or more of its experiments is successful. — + Each experiment costs $2,900. _— + Each experiment has a 2% probability of success, independent of the other experiments. + Allexperiments run simultaneously. * Fixed expenses are $500,000. + Ignore investment income. ‘The company performs the number of experiments that maximizes its expected profit. Determine the company's expected profit before it starts the experiments. = — (A) 77,618 (B) 77,829 (© 7,840 (D) 7,851 (E) 77,862 _ Asn Ts gk t bs hn eXypern1,22, Claim size for an insurance coverage follows a lognormal distribution with mean 1000 and median 800. Determine the probability that a claim will be greater than 1200. Lot x x x size, Qhom chica) = __ medliake 00 = 2 | ahso ELX~ expl utto?)~ woo we a oe =, oe oe = =t000 ~e xe t=o0 =) POVe* =100=) 6 Las => ote =InCr.zs) ~S ote 2Inli,25) =c=0. cere c uk Booze So w=|,GoOo) PCX >thevd= $Ci200) = [- F Cred) = in W200) Ince 20) =n (Oe) “oe (60) 0.2704 ~~ 1.23, Claim sizes for Kevin follow an exponential distribution with mean 6. Claim sizes for Kira follow an __ exponential distribution with mean 12, Kevin Calculate the probability that the sum of the two claims is greates than 20. ol. and Kira submit one claim apiece. bef pat ys RTE» PCXtY S20) pleyrg a POGY>2012e) Coe)dn pte s2olx)e te 6 0 Sore 2 doc.