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IEOR 4404
Assignment #6
Simulation
October 20, 2008
Prof. Mariana OlveraCravioto
Page 1 of 1
Assignment #6
– due October 28th, 2008
1. Suppose in the insurance risk model presented in Lecture 11 that, conditional on the event
that the ﬁrm’s capital goes negative before time
T
, we are also interested in the time at
which it becomes negative and the amount of the shortfall. Explain how we an use the given
simulation methodology to obtain relevant data. (You do not need to write a program.)
2. A system experiences shocks that occur in accordance with a Poisson process having a rate
of 1/hour. Each shock has a certain amount of damage associated with it. These damages
are assumed to be independent random variables (which are also independent of the times at
which the shocks occur), having the common density function
f
(
x
) =
xe

x
,
x >
0
Damages dissipate in time at an exponential rate
α
—that is, a shock whose initial damage is
x
will have remaining damage value
xe

as
at time
s
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This note was uploaded on 12/20/2010 for the course IEOR E4404 taught by Professor Marianaolveracravioto during the Spring '08 term at Columbia.
 Spring '08
 MarianaOlveraCravioto

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