Lecture02

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

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

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