1. 

   fightercat Member

   Hi, anyone knows why we need to times exp(-1.5) when calculating the expected cost per policy for B please?????
   
   I used 0.45 * 0.15 * (E(X|E>M) -1500) * 0.05

    

   fightercat, Apr 7, 2018

   #1
2. 

   Sam88 Member

   exp(-1.5) refers to P(X>M). Given this is from an exponential distribution:
   
   P(X>M) = 1 - (1- exp(-M*0.001)) = exp(-M*0.001), M = 1500 and hence you get exp(-1.5)

    

   Last edited by a moderator: Apr 15, 2018

   Sam88, Apr 12, 2018

   #2

   John Lee likes this.

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