ASTAM Practice Test

1Multiple ChoiceSelect all that apply

An actuary models individual claim severities using a Pareto distribution with shape parameter α = 3 and scale parameter θ = 2,000. For a claim that exceeds the deductible d = 1,000 (no policy limit), which of the following are true? (Choose two.)

A.The expected payment per claim with the deductible is approximately 250.
B.The expected payment per claim with the deductible is approximately 333.
C.E[X ∧ L] = E[X] − E[(X − d)+] when L is set to a large policy limit, and the limited expected value approaches E[X] as L → ∞.
D.The limited expected value function F(x) = E[(X − d)+] / (1 − F(d)) is applied to severity, while the survival function is applied to the limited payment variable.

Reveal the answer to continue