Lecture02

# Lecture02 - • A scaled measure of how much two variables...

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Lecture 2 : Multiplication Rule and Insurance • Probability P, 0<P<1 • Multiplication rule for independent events: Prob(A and B) = Prob(A) Prob(B) • Probability of n independent accidents = P n • Probability of x accidents in n policies (Binomial Distributon):

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Expected Value, Mean, Average
Variance and Standard Deviation • Variance ( 2 )is a measure of dispersion • Standard deviation is square root of variance

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Covariance • A Measure of how much two variables move together
Correlation

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Unformatted text preview: • A scaled measure of how much two variables move together • -1 1 Regression, Beta=.5, corr=.93 Normal Distribution Normal Versus Fat-Tailed Present Discounted Value (PDV) • PDV of a dollar in one year = 1/(1+r) • PDV of a dollar in n years = 1/(1+r) n • PDV of a stream of payments x 1 ,.., x n Consol and Annuity Formulas • Consol pays constant quantity x forever • Growing consol pays x (1+ g )^( t-1) in t • Annuity pays x from time 1 to T...
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## This note was uploaded on 02/08/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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Lecture02 - • A scaled measure of how much two variables...

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