Actuarial exam: detailed solution

Problem 50

A company buys a policy to insure its revenue in the event of major snowstorms that shut down
business. The policy pays nothing for the first such snowstorm of the year and 10,000 for each one
thereafter, until the end of the year. The number of major snowstorms per year that shut down
business is assumed to have a Poisson distribution with mean 1.5.

Calculate the expected amount paid to the company under this policy during a one-year period.

(A) 2,769 (B) 5,000 (C) 7,231 (D) 8,347 (E) 10,578
The problem here is that 0 is not fit to
the given condition.
Prerequisite

- Poisson distribution
o In Poisson distribution, the mean is represented as E(X) = λ.
o For a Poisson Distribution, the mean and the variance are equal. It means that E(X) =
V(X)
o The mean in Poisson distribution is

Solution

it's a trick where you add and

subtract at the same time, so it
keeps the equation balanced. She
added X = 0 into the summation, but
subtracted the X = 0 outside of the
summation, therefore keeping it
balanced. If you have X = 0 to infinity
instead of X = 1 to infinity, you can
use the E(X) rules on the summation,
and for the X = 0 part on the outside,
you can simply evaluate it alone.
1- P (N ≤ 1 ) = [1 - e1.5 ( 1 + 1.5 ) ]–
compliment of n = 2
 n=2

e1.5 (1.5)n
n!

if n = 2, where E[n] = 1.5 = λ n = 0 → e1.5

E [n] – e-1.5(1.5) n = 1 → e1.5 1.5

If n = 3 P (N ≤ 1 ) = 1 + e1.5 ( 1 + 1.5 )

E [n] – e-1.5
1.(1.5)
-1.5
For- eany(1.5) - probability distribution the following formula is applied.
discrete
… /Taylor series/ Зэрэгт
дэвшүүлэхгүй ???

2. In the given case the Poisson distribution is provided, therefore, we are modified above formula
in below

Where X = 10000 (x-1)

And P(x) is
 3. ggf

4. fdg

There are at least 2 ways to solve the question.

Generic formula used is

Poisson distribution table
Reading

Probability for risk management, p-88