Principles of Insurance, Week 2, Chapter 3
Principles of Insurance, Week 2, Chapter 3 36081
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This 1 page Class Notes was uploaded by Naya Rhodes on Sunday September 11, 2016. The Class Notes belongs to 36081 at Kent State University taught by David Dumpe in Fall 2016. Since its upload, it has received 7 views. For similar materials see Principles of Insurance in Finance at Kent State University.
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Date Created: 09/11/16
PrinciplesofInsurance Chapter3:RiskAssessmentandPooling -IntroductiontoProbability:Probabilitydistributionisatable/graphthatshowsallthepossibleoutcomesforarandom variable.Avariablewhosefuturevalueisunknowniscalledarandomvariable.Expectedvalueisthestartingpointfor calculatinganinsurancepremiumorhowmuchafirmcouldsetasideforpotentiallosses.Variancemeasureshowthe outcomesofarandomvariablevaryaroundtheexpectedvalueofthatvariable.Standarddeviationmeasuresthedegreeto whichactuallossesdeviatefromtheexpectedloss. -Severityandfrequencyaretwoimportantcomponentsoftotallosses.Tofindtheexpectedvalueoflossfrequencyorloss severity,weneedtolookatthelossfrequency/severitydistributions. -Convolutioncalculatesallpossiblecombinationsoflosseswhichisindicatedbythelossfrequency/severitydistributions. -Riskpoolingistheabilitytoreduceexposureunit’sriskbymakingmoreaccuratepredictionsaboutalargepoolofunits. Exposureunitsarepeopleexposedtorisk. -RiskchargeistheproductofK(aspecifiednumberreflectingtheuncertainty)andthestandarddeviation.
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