2010_EC507_HW2

2010_EC507_HW2 - EC 507Statistics for Economists Spring...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
EC 507—Statistics for Economists Spring 2010 Problem Set 2 1. Acme Insurance Co. is considering entering the market for freak accident insurance. The CEO of Acme wants you to head the new group to develop products to insure individuals against severely biting their tongue or lip. a. Before structuring and selling the policy, you have to determine just how many claims you may come across in a given day. Assuming ACME will sell 100 LIPTUNG PRO TM policies, and the probability that any covered person will bite their tongue or lip during the day is 1/36, what probability will 0, 1, 2,. . ., or 10 claims be filed in a single day? Model the tongue and tongue/lip biting process as binomial (where the chewing behavior of each policy-holder is independent). b. Graph the binomial probabilities for 0, 1, 2,. . ., 10, . . .claims. This is the probability density for a Binomial(100, 1/36) distribution.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. What would the relative frequencies for the number of daily claims be if the process of tongue/lip biting followed a Poisson process? Recall that the Poisson parameter λ can be interpreted as np = , where n and p are the parameters of the binomial process described above. d. Under your direction, ACME sells the product as a trial to 100 clients for two years. Over this time, the actual number of claims within a day occurred with the following frequencies:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/09/2010 for the course CAS ec399 taught by Professor Tack during the Spring '10 term at BCUC.

Page1 / 12

2010_EC507_HW2 - EC 507Statistics for Economists Spring...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online