Suppose that we have 45% of claims are type A1 and 55% are type A2 (This...

Suppose that we have 45% of claims are type A1 and 55% are type A2 (This is our prior distribution). Suppose Type A1 claims will have the following claims amount distribution. P(0) = 0.6; P($500) = 0.25 and P($2000) = 0.15. Type A2 claims will have the following claims amount distribution. P(0) = 0.75; P($750) = 0.18 and P($2500) = 0.07.

a. What is the expected Claim amount for each type?

b. What is the overall expected claim amount?

c. What is the distribution of claim amount?

d. An individual is selected at random (i.e. unknown type) and a claim amount of $0 is observed. What is the posterior distribution of claim type?

e. Given the same person, what is the expected claim amount for the next year.

f. An individual is selected at random (i.e. unknown type) and a claim amount of $5000 is observed. What is the posterior distribution of claim type?

Expert Solution

orchestra answered 2 years ago

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