Random Variable and Distribution
A random variable is a variable with uncertain outcome. A variable with a certain outcome is a constant.
For example, your age is a constant while the grade you may get from this class is a random variable.
A distribution
There are two groups of insurance buyers with following risk distributions:
Group 1
Possible Loss
Probability
$0
0.80
$100,000
0.20
Group 2
Possible Loss
Probability
$0
0.90
$100,000
0.10
Assume that there are equal numbers of insurance buyers in group 1
Review Sheet Exam 2
(IRM 3090)
Lecture 5 Insurer Ownership, Financial and Operational Structure (Ch5)
Economic capital (surplus)
Insolvency risk and capital
o Effect of correlated losses
Different ownership structure
Benefits of capital
Costs of insurer c
Review Sheet Exam 1
(IRM 3090)
Lecture 1 risk and its management (Ch1)
Two definitions of risk
Direct and indirect losses of risk
Business risks
Personal risk
Pure risk versus other risks (price risk)
Risk management process: 5 steps
Risk management metho
Given the following loss distribution:
$100,000
Loss = $60,000
0
with prob. 0.10
with prob. 0.20
with prob. 0.70
Find (1) pure premium and (2) fair Premium if
policy provides full coverage
underwriting costs = 30% of pure premium
interest rate = 10%
c
IRM3090: Principles of Risk and Insurance
Homework 1
Due: 2/4/2016
Part I. Individual Part (You are encouraged to work with your group while submit
your own copy of the homework)
1. (1) What are the five components of cost of risk?
Expected losses
Cost of
IRM3090: Principles of Risk and Insurance
Homework 2
Due: 3/8/2016
Solution
Part I. Individual Part (You are encouraged to work with your group while submit
your own copy of the homework)
1. What is economic capital for an insurer with assets of $200 mill
IRM3090: Principles of Risk and Insurance
Homework 3
Due: 4/12/2016
Part I. Individual Part (You are encouraged to work with your group while submit
your own copy of the homework)
1. Suppose that Annies loss distribution is as follows:
$ 5,000 with probab
L2: Why Would Firms Manage Risks?
Risk imposes costs on businesses and individuals
Risk Management (e.g., loss control and
insurance) also is costly
Tradeoffs must be made
Need a criteria for making choices about how
much risk management should be unde
IRM 3090: Principles of Risk and Insurance
Problem Set #1
Due 2/05/2015
Problem 1: Consider the following figure discussed in class. Answer the question that follows the figure
by referring to points on the figure. U(W) denotes the utility function that r