RMS 4004 Assignment 1 Due: Feb. 10, 2006 . Using the methods of existence of moments and limiting density ratio to com- pare the tail weight of the Weibull and inverse Weibull distributions with edf -en[-() v0 rui=en(-(2)] v0 Given a value of © = 8, the random variable X has an exponential distribution with mean }, a constant. The random variable has a uniform distribution on the interval (1,11). Determine the unconditional probability that X exceeds 05. Fly) and respectively. . Risk 1 has a Pareto distribution with parameters a > 2 and @. Risk 2 has a Pareto distribution with parameters 0.8 and @. Each risk is covered by a separate policy, each with an ordinary deductible of k. Determine the expected cost per loss for risk 1. Determine the limit as k goes to infinity of the rato of the expected cost per loss for risk 2 to the expected cost per loss for risk 1. Losses (prior to any deductibles being applied) have a distribution as reflected in the following table. z Fe) [EX Aa) 10,000 | 0.60 6,000 15.000 [0.70 7,700) 0.80 9,500 0.90 [11.000 1.00) 20,000 ‘There is a per loss ordinary deductible of 10,000. The deductible is the raised so that half the number of losses exceed the new deductible as exceeded the old deductible. Determine the percentage chnage in the expected cost per payment when the deductible is raised. Total claims for a health plan have a Pareto distribution with a = 2and 6 = 500 ‘The health plan implements an incentive to physicians that will pay a bonus of 50% of the amount by which total claims are less than 500, otherwise no bonus is paid. It is antipicated that with the incentive plan, the claim distribution will change to become Pareto with a = 2 and @ = K’. With the new distribution it turns out the expected claims plus the expected bonus is equal to expected claims prior to the bonus system. Determine the value of Losses have a lognormal distribution with j2= 10 and ¢ =1. For losses below 50,000, no payment is made. For losses between 50,000 and 100,000, the full amount of the loss is paid. For losses in excess of 100,000 the limit of 100,000 is paid. Determine the expected cost per loss.7. Losses have a Pareto distribution with a =2 and @ = k. There is an ordinary deductible of 2k, Determine the loss elimination ratio before and after 100% inflation. 8. Show that a Pareto random variable with density ape fe)= At > 0, ot B(XAu)= af (e)"'] ot —Olog (5) a=