… are available at http://fin4335.garven.com/spring2020/Insurance%20Economics%20Class%20Problem%20Solutions.pdf.

… are available at http://fin4335.garven.com/spring2020/ps4solutions.pdf.

Last Thursday’s “Broader Risk Definitions” Class Problem is available here; the solutions are available here.

… are available at http://fin4335.garven.com/spring2020/ps3solutions.pdf.

Today’s risk aversion class problem is available here; the solutions are available here.

PDF’s of today’s class problem and solutions are available here:

• Risk Pooling Class Problem
• Risk Pooling Class Problem Solutions

Note also that the probability of a loss exceeding $1,500 when n =1 (i.e., when there is no risk pooling) is:

.

This problem showcases the tremendous advantage afforded to consumers from the pooling of risk, by reducing the probability of a large loss by almost 60% when risks are iid and n =5 (question 1), and by reducing the probability of a large loss by more than 80% when risks are iid and n =10 (question 2).  However, the introduction of positive correlation in question 3 significantly reduces the efficacy of risk pooling, since for n =10 and , there is a 12.57% probability that the loss on an average policy will exceed $1,500.

… are available at http://fin4335.garven.com/spring2020/ps2solutions.pdf.

… are linked below:

1. Statistics Class Problem (January 21, 2020)
2. Statistics Class Problem Solutions (January 21, 2020)
3. Statistics Class Problem Spreadsheet (January 21, 2020)

… are available at http://fin4335.garven.com/spring2020/ps1solutions.pdf.