Math 478 / 568: Actuarial Modeling. Professor Rick Gorvett Spring 2014. Syllabus. Office Hours : 3-4 pm Tuesdays, 3-4 pm Wednesdays, or by appointment Textbook : Klugman , Panjer , and Willmot , 4 th edition Exam dates : 3 exams, per syllabus Grades : Exams, homeworks , project.
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Math 478 / 568:Actuarial Modeling
Professor Rick Gorvett
Office Hours: 3-4 pm Tuesdays, 3-4 pm Wednesdays, or by appointment
Textbook: Klugman, Panjer, and Willmot, 4thedition
Exam dates: 3 exams, per syllabus
Grades: Exams, homeworks, project
How do we select amongst alternative models?
How do we use empirical data to determine the characteristics of distributions?
In what sense are some models and parameters “better” or “optimal” in a given situation?
- Theresa Grentz, former University of Illinois Women’s Basketball Coach
or finance-related work
Two real-world examples
Space Shuttle Challenger Explosion
23 successful launches prior to January 28, 1986
Previous launches at temperatures from 53°F to 81°F
Challenger launch on morning of 1/28/86 was at 31°F – far below previous launches
Vehicle exploded 73 seconds after launch
Cause (per Rogers Commission): gas leak in SRB, caused by failure or degredation of O-ring, led to weakening or penetration of external fuel tank
Rogers Commission conclusion: “A careful analysis of the flight history of O-ring performance would have revealed the correlation of O-ring damage in low temperature.”
How predictable was it?
Charts from “Risk Analysis of the Space Shuttle: Pre-Challenger Prediction of Failure,” by Dalal, et al, Journal of the American Statistical Association, December 1989
The Mir Space Station
Suppose you are an actuary, working for an insurance firm
Your firm has been approached by Taco Bell to insure against the potential financial loss associated with their possible Mir-related payout
What’s a reasonable price for such coverage?
Aggregate loss = frequency times severity
What is the probability of Mir hitting the target?
What will it cost Taco Bell if it does?