I have a serious issue with question 2.17 and 2.18. and i needed serious and urgent attention. Question 2.17 under proportional reinsurance, i suppose that we can get variance of amount paid by insurer as (retained proportion)^2 *Var(S) and for the reinsurer as (1-retained proportion)*Var(S). but this is not the solution provided and if i use the above formular (if its right) i will not get var(S) if i sum the two formular. am i missing something? Question 2.18 In calculating E(Y^2) i think there is a mistake since in the second integral since we have integral M^2*1/200 and the M^2 was not carried through in the calculation. Or is it me that is overlooking so many things? I really need clarification on this...
2.17 S - claim X - proportion retained by insurer, ie rS Y - proportion ceded to reinsurer, (1-r)S Var (X) = r^2 * Var(S) Var (Y) = (1-r)^2 *Var(S) Var (X+Y)= Var(X) + Var(Y) +2Cov(X,Y) Holds for any 2 variables X,Y 2 Cov(X,Y) is what you're probably missing.
Thanks for the explanation but if you check the solution to that question that was not what was done. and that was why i was a bit confused.
