Question

g

Sup. Suppose Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that that losses are independent.

Sup

a) a) Write out the possible outcomes and the probability of each outcome for Kate and Anne after they enter into a pooling arrangement. That is, write out the probability distribution for each of the women after they enter into a pooling   arrangement.

Answer 1

Solution

Possible outcome	Loss	Cost paid by each( average Loss)	Probability
Kate had loss and Anne did not	50,000	25,000	0.005*0.995=0.004975
Kate had loss and Anne did not	20,000	10,000	0.01*0.99=0.0099
Kate had loss and Anne did not	10,000	5,000	0.02*0.98=0.0196
Neither Kate nor anne had loss	0	0	0.965*0.965=0.931
Anne had loss kate did not	50,000	25,000	0.005*0.995=0.004975
Anne had loss kate did not	20,000	10,000	0.01*0.99=0.0099
Anne had loss kate did not	10,000	5,000	0.02*0.98=0.0196
Both Anne and Kate had loss	100,000	50,000	0.005*0.005=0.000025
Both Anne and Kate had loss	40,000	20,000	0.01*0.01=0.0001
Both Anne and Kate had loss	20,000	10,000	0.02*0.02=0.0004