Suppose claim amount for an insurance company follows a discrete distribution k P 100 0

Finance Jan 15, 2021

Suppose claim amount for an insurance company follows a discrete distribution k P 100 0.02 90 0.02 80 0.04 50 0.12 0 0.8 Find the cash values which company should hold to be able to cover claims completely with 95% 98% and 99% confidence levels..

Expert Solution

	k	Pk
	Claim amount	Probability	Cumulative Probability
	0	0.8	0.8
	50	0.12	0.92
	80	0.04	0.96
	90	0.02	0.98
	100	0.02	1.00

Cash Values company should keep to cover claims completely with 95% Confidence Level	80
Cash Values company should keep to cover claims completely with 98% Confidence Level	90
Cash Values company should keep to cover claims completely with 99% Confidence Level	100

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