Exam MAS-I Practice Question 70
Study guide: Exam MAS-I
Two Pareto models have been fitted to the same claim data, and both have a mean of 1,000:
- Model 1:
\alpha = 3,\theta = 2{,}000 - Model 2:
\alpha = 6,\theta = 5{,}000
The selected model will be used to price both a deductible of 500 and an unlimited excess layer above 5,000.
Determine which of the following statements are true.
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I. Model 1 gives the larger expected loss in the layer above 5,000,
E[(X - 5{,}000)_+]. -
II. Model 1 gives the larger expected loss eliminated by the deductible,
E[X \wedge 500]. -
III. The two models give the same expected payment per payment under the deductible of 500, because their means are equal.
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A) I only
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B) I and II only
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C) I and III only
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D) II and III only
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E) The answer is not given by (A), (B), (C), or (D)
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