Q&A Bank Q2.25

Discussion in 'CT6' started by Colin Gray, Jul 27, 2018.

  1. Colin Gray

    Colin Gray Member

    Hi,

    I am struggling to interpret questions to understand whether portfolios are homogenous or in-homogenous. Question 2.25 relates to chapter 8, so I assume it is testing our ability to understand which is which?

    Also my initial thoughts before seeing the answer to the question was to go to the formulas on page 16 of the tables to calculate the variance and try to use the formula for var(S). Presumably this was wrong as the question is not relating to the sum of IID RVs? Instead, could the formula on page 16 for conditional variance (i.e the var(Y)) formula be used?

    On a separate note, is there an obvious way to spot that a question is an individual risk model question (Q 2.24 for example)? Do we just look out for the question saying that the number of claims from each risk are 0 or 1, the number of risks being specified and that the individual risks are independent? Or does the negative binomial distribution give it away?

    Generally I have difficulty recognising which model to use from the wording of a question so any tips you could give me would be really appreciated.

    Thanks!
     
    Last edited by a moderator: Jul 28, 2018
    Colin Gray, Jul 27, 2018
    #1
  2. John Lee

    John Lee ActEd Tutor Staff Member

    There's not been an exam question on this yet - but given that the current chief examiner is systematically working through the bookwork and this remains one of only 3 bits he hasn't tested yet....

    Essentially, in both cases the Poisson parameter changes and so you use the conditional formulae to get E(Si) and var(Si).

    The only difference is whether that Poisson parameter is the same for all portfolios, Si, or different, which affects how you obtain E(S) and var(S).

    You're corrected. It's not a sum so we don't use the E(S), var(S) formulae. And yes we can use the conditional formulae at the top of page 16.

    They KEY difference is that there is at most 1 claim. So either it will say this explicitly or it will be life insurance.
     
    John Lee, Sep 11, 2018
    #2
  3. Colin Gray

    Colin Gray Member

    Thanks very much for the response John. Answers all my questions.

    Also I like the quote!
     
    Colin Gray, Sep 14, 2018
    #3

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