• anonymous
Insurance losses L in a given year have a lognormal distribution with L=e^X, where X is a normal random variable with mean 3.9 and standard deviation 0.8. If a $100 deductible and a $50 benefit are imposed, what is the probability the insurance company will pay the benefit limit given that a loss exceeds the deductible?
  • Stacey Warren - Expert
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  • katieb
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  • anonymous
The question seems to be what is the probability that L > 150. ln L = X mean (ln L) = 3.9 s.d. (ln L) = 0.8 ln (150) = 5.0 find the normal distribution probability that 5.0 or more occurs when mean = 3.9 and s.d =0.8 this is same as z-score >= (5.0-3.9)/0.8 I must leave. Good luck.

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