On the third page of the text... Venter gives an example where:
Y is the loss severity random variable
S(y) = (1+y)^-2 for y<99
and a point mass of .0001 at y=99
Then he supposes there are two Tranches:
Tranche A pays if the loss is below 0.5
Tranche B pays otherwise
He says E[Y] = .99 {I agree}
But (prior to the Wang transform) he says the expected values of Tranche A and B are .111 and .879 respectively. How does he get these values? I am getting .333 and .657.
Y is the loss severity random variable
S(y) = (1+y)^-2 for y<99
and a point mass of .0001 at y=99
Then he supposes there are two Tranches:
Tranche A pays if the loss is below 0.5
Tranche B pays otherwise
He says E[Y] = .99 {I agree}
But (prior to the Wang transform) he says the expected values of Tranche A and B are .111 and .879 respectively. How does he get these values? I am getting .333 and .657.
Venter Non-Tail
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