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SEMESTER 2
ACTL 3003: Insurance Risk Models
Class Test
Monday, 16 August 2010
Write the required information on the space provided:
Name:
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INSTRUCTIONS:
Read through the following information carefully. DO NOT COMMENCE WRITING UNTIL YOU ARE TOLD TO DO SO.
Time Allowed: 60 minutes
Total Assessment credit: 10%
Total Marks available: 100 points
This examination paper has 11 pages
Total number of questions: 6
All questions are not of equal value. Marks allocated for each part of the questions are
indicated.
This is a closed-book test and no formula sheets are allowed except for the Formulae and
Tables for Actuarial Exams (any edition). IT MUST BE WHOLLY UNANNOTATED.
Use your own calculator for this exam. If your calculators are not UNSW approved, the
calculators must be hand-held, internally powered and silent, and any programmable
memory must be cleared prior to entering an examination room.
Show all necessary steps in your solutions in the space provided (if necessary, you can
also use the back pages). If there is no written solution, then no marks will be
awarded.
STUDENTS WRITING AFTER THE EXAM TIME HAS EXPIRED WILL
SCORE A MARK OF ZERO. ACADEMIC MISCONDUCT ACTION MAY
ALSO RESULT.
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(e) [2 marks] Suppose the insurer purchases reinsurance and as a result retains a proportion, , of the loss. Find the fair price of the reinsurance contract.
(b) [5 marks] Using the cumulant generating function, find the first cumulant of S in terms
of p1 = E[X]. Show your work.
y1 r
fY (y) =
p (1 p)yr , y = r, r + 1, ,
r1
where r is a positive integer. P
Let N = Y r and S = N
i=1 Xi , where X1 , X2 , are independent and identically
distributed, and independent of N . The probability mass function of the random variable
X1 is p(x) = 0.1x, x = 1, 2, 3, 4.
(a) [8 marks] Show that the random variable N belongs to the (a, b) family and identify
a and b in terms of r and p.
(b) [6 marks] Let p = 0.1 and r = 2. Suppose that you know fS (1) = 0.0018 and
fS (2) = 0.003843. Find fS (0) and use Panjers recursion to determine fS (3).
[mS (0)mS (0) mS (0)mS (0)](mS (0))2 2[mS (0)mS (0) (mS (0))2 ]mS (0)mS (0)
= 3.
(mS (0))4
(a) [12 marks] Determine E[S], V ar(S) and E[(S E[S])3 ]. Show all working.
(b) [7 marks] Let G(x; , ) denote the Gamma distribution function with parameters
and . Find the translated gamma approximation for Pr(S 10) in terms of G(x; , )
with the appropriate values of x, and being specified.
(b) [5 marks] Find an expression for the adjustment coefficient R in terms of c, and
only.
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(c) [10 marks] Now, instead of assuming that the claim amount random variable is exponentially distributed, we assume that the claim amount random variable is uniformly
distributed over the interval [a, b] (0 a < b). Define T to be the time of ruin, i.e., the first
time that the surplus process becomes negative. Given that T < , find the range of U (T ).
END
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