A financial contract pays a reward to the participants when losses are below a certain...
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A financial contract pays a reward to the participants when losses are below a certain threshold, this is a particular type of problem which Weishaus calls a Bonus problem. The bonus, dividend, or refund amount is expressed as a maximum between 0 and the refunded amount. For example, a 15% refund is paid on the difference between the $100 premium and the loss where losses are distributed exponentially with parameter = $80.
Find the expected reward payment. [25 pts]
What is the percentage of decrease on the companys aggregate loss, i.e. Loss Elimination Ratio, by this contract? [20 pts]
Q4. A financial contract pays a reward to the participants when losses are below a certain threshold, this is a particular type of problem which Weishaus calls a "Bonus" problem. The bonus, dividend, or refund amount is expressed as a maximum between 0 and the refunded amount. For example, a 15% refund is paid on the difference between the $100 premium and the loss L where losses are distributed exponentially with parameter 0 = $80. i. Find the expected reward payment. [25 pts] ii. What is the percentage of decrease on the company's aggregate loss, i.e. Loss Elimination Ratio, by this contract? [20 pts] Good luck
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