Exam MAS-I Practice Question 5
Study guide: Exam MAS-I
Ground-up losses X follow a Pareto distribution with \alpha = 3 and \theta = 2{,}000, so that
E[X \wedge u] = \frac{\theta}{\alpha - 1}\left[1 - \left(\frac{\theta}{\theta + u}\right)^{\alpha - 1}\right].Part a (1 point)
Calculate E[X \wedge 5{,}000]. Give your answer to the nearest whole number.
Part b (1 point)
A policy has an ordinary deductible of 1,000 and a maximum covered loss of 5,000: it pays X - 1{,}000 for losses between 1,000 and 5,000, and 4,000 for losses above 5,000. Calculate the expected payment per loss. Give your answer to the nearest whole number.
Part c (1 point)
All losses increase by 10%, and the deductible and maximum covered loss are unchanged. Calculate the new expected payment per loss. Give your answer to the nearest whole number.
Answer this question and see the worked solution