An insurance policy has an ordinary deductible of 100 and a maximum covered loss of 10,000....

An insurance policy has an ordinary deductible of 100 and a maximum covered loss of 10,000. You observe the following six payments:
100 200 500 600 1000 5000
In addition, there are three payments at the limit. You ﬁt a single parameter Pareto distribution with θ = 50 to the ground up distribution using maximum likelihood. Determine the estimated parameterα.

Expert Solution

X_i	log X_i	log (X_i /Ɵ)
100	4.605	0.0921
200	5.298	0.1060
500	6.215	0.1243
600	6.397	0.1279
1000	6.908	0.1382
5000	8.517	0.1703
Sum	37.940	0.7588

orchestra answered 2 years ago

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An insurance policy has an ordinary deductible of 100 and a maximum covered loss of 10,000....

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Expert Solution

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