Exam P

Raise Your Odds with Adapt

Basic Probability Relationships

Pr = Pr + Pr Pr
Pr = Pr + Pr + Pr
Pr Pr
Pr + Pr
Pr + = 1 Pr

Law of Total Probability
Pr = .-/0 Pr -

GENERAL PROBABILITY
PROBABILITY
GENERAL

De Morgans Law
Pr + = Pr + +
Pr + = Pr + +

Conditional Probability
Pr
Pr =

Pr

Independence
Pr = Pr Pr
Pr = Pr

Bayes Theorem
Pr - Pr Pr - = 3
2/0 Pr 2 Pr 2

UNIVARIATE
PROBABILITY
UNIVARIATE
PROBABILITY DISTRIBUTIONS
DISTRIBUTIONS
*Probability Mass Function (PMF)
5 = 1

Variance, Standard Deviation and Coefficient of Variation

= A A
=
+ = A
=
= 0
*Moment Generating Function (MGF)
N
5 = Z5 = ON Z: 5
\Z
G5[\ = 5
5 0 = 1
5[] = 5 ] (independent)
.
5
= .
.
Z/P
Percentiles
The 100th percentile is the smallest value of _ where 5 _ .
Univariate Transformation
O0
] = 5 O0

where = () = O0

5 = 0 (continuous)

788 :

*Cumulative Distribution Function (CDF)

5 G = Pr G = G-/0 5 -
Pr < = 5 5
K
5 = 5 (continuous)
K:
*Expected Value
=
N

=
=

ON
N +

5 , for domain 0

| =

Pr
=
0 + + 2 = 0 + + 2

Discrete Distributions

=
1

+ 1

Discrete Uniform

:
1

Binomial
Hypergeometric
Geometric

: trials; : failure
= + 1
Negative Binomial

: trials; : failure
= +

1 ~
1 
1
1

:O

+ 1 A 1

12

\[0 Z

(1 Z )( + 1)

Special Properties

Z + .

1

A

Z

1 1 Z

1 1 Z

Memoryless property

1
1

+ 1 
1 ~
1

O :

!

Poisson
Continuous Distributions


Continuous
Uniform

:O0

.O:

+

2

()

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1

A

GZ

Z
1 1 Z

1 1 Z

O0

NegBin = 1, ~
Geometric()
Sum of Poissons ~
Poisson( = .-/0 - )

Special Properties

+

2

A

12

\Z GZ

> ~uniform(, )
> ~uniform(0, )

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ponential
ponential

:
1 1O:O

()
()
:O

O
1
1

A
A

1 1

1
1

O0
O0

Gamma
Gamma

O0O0

1
1

:
O

Normal
Normal

PrPr = = , ,

2/P
2/P

~Poisson = =:
~Poisson


==

Pr

=
Pr
=

Central
Limit
Theorem
Central
Limit
Theorem
Sum
o
f

i
dentically
and
independently
distriuted
uted
Sum of identically and
independently
distri
( (D) D)

random
variales
les
approimately
imately
follows
normal
distriution
ution
random
varia
appro
follows
a na ormal
distri


Sum
Independent
Normal
RVs
Normal = = / , , = =
Sum
of oIf ndependent
Normal
RVs
~ ~
N ormal
/

11

1
1

Special
Properties
Special
Properties
Memoryless
property
Memoryless property

~

> > ~
Sum
ponentials ~ ~
Sum
of of e eponentials
Gamma
Gamma , ,

Symmetry
Symmetry

Pr

=
Pr
Pr
= Pr
PrPr = =PrPr
Expectation
and
Variance
for
Sum
and
Average
Expectation
and
Variance
for
Sum
and
Average
of of
IID
R
andom
V
ariables
(
RVs)
IID Random Variables (RVs)
0+
0+
= =0+

++
. .
= =0+

++
..

=
=
= =

= =(1(1))

Z[ Z
A
Z[ A

MULTIVARIATE
PROBABILITY
MULTIVARIATE
P
ROBABILITY
D
ISTRIBUTIONS
MULTIVARIATE PROBABILITY DDISTRIBUTIONS
ISTRIBUTIONS

oint
PMF
and
CDF
* *oint
PMF
and
CDF
= =1 1
788 : 788
~ 5,],,

788 : 788 ~ 5,]

~
:

=
5,] ,
/ON ~ Z/ON
5,]5,], = :/ON
Z/ON 5,] ,
(continuous)
5,],,
= = 5,],,
(continuous)

Double
Expectation
and
Double
Expectation
and

Law
Total
Variance
Law
of oTf otal
Variance
= =
= =
+ +

: ~
5,]

: ~ 5,]


Covariance
and
Covariance
and
*Marginal
D
istributions
a
nd
*Marginal Distributions and
Correlation
Coefficient
Correlation
C
oefficient
Conditional
Distributions
Conditional
Distributions

, =

~ 5,] ,
55 = = 788 788

~ 5,] ,
, = ,,

: 5,] ,
,,
= =

]] = = 788 788
: 5,] ,

A
A
5|] = = 5,],,

+ +
+ +
2
5|]
]]
5,]

++
= = A
A
2

,
oint
Expected
Value
and
Conditional
* *oint
Expected
Value
and
Conditional

Expectation
Expectation
,,


5,] = , =
5,] = , =
,N,
N

N N
=

= ONONONON
, 5,]5,],

Independence
N= =
Independence
N
5|] = =
5,],,
= =ONON

5|]

5,]
= =55 ]]
5,],,

5,]
= =55 ]]
oint
GF
* *oint
MM
GF
= =
5[Z]

5,] , , = =5
,

]
5[Z]
5,]
5,] N, N=

5,]
5
]
:[Z~

=
0,
N N
=

5,] = 0
:[Z~
, = 0,
= ONONONON

5,]5,],
5,] = 0

5,]
= = 5,]
( (, ), ) /Z/P

Multivariate
Transformation
Multivariate
Transformation
/Z/P

,
= 5 ,5 0 , A
,
0
A

(
,
)

,
0 , A = 5 ,5 0 , A
=
( , ) /Z/P

Z 5,]5,]
:
:
Z

/Z/P

3 .

,
.
3
==
Z5,]5,] ,
Z

5,], = 5[]
5,]

/Z/P
/Z/P

where = =
where

5[]

INSURANCE
A
ND
R
IS M M
ANAGEMENT
INSURANCE
AND
RISK
MANAGEMENT
INSURANCE AND RIS
ANAGEMENT

Category
Category

Definition
Payment,
Definition
of oPf ayment,
0 , 0,

= = ,
,
> >

Deductile le
Deducti

,,
= = ,
,

Policy imit
imit
Policy
Deductile le
and
Policy imit
imit
Deducti
and
Policy
the
policy
limit
( ( is its he
policy
limit
maimum
imum
payment)
ma
payment)

0,0,

,,
= =
, ,

< < < <
+ +

+
+

P
K[
K[
K
K

1 A A
= = = = A] A1

]


Order
Statistics
Order
Statistics

=
0
0 = i i 0, 0,A, A , , ,..
. = a a
0 , A , , , .

. =
0 , A ,
.
random
varialesles
or or D D
random
varia

.

.
5
5
5 = 5
.
5 = = 5 .
5

ponential
or or
e eponential

Pr

>

Pr >

ponential
or or
e eponential

Pr

<
Pr <

55
+ + 55

P 5

55
+ + 55
+ +
K[
K[

K 5
K

==

N 5 5
N
K 5

N
N
K
K

< <

Multinomial
Distribution
Multinomial
Distribution
0 =
2 =
PrPr0=
0, 0 , , ,2=
22
!
:
:
!
= = 0 ! 2!0:0 2:2
0 ! 2 !
-
--= =
-
-= =1
1
-

- -

U
- , U = - -U, U ,



Bivariate
Continuous
Uniform
Bivariate
Continuous
Uniform
5,],,
rea
domain
5,]
= =1 1 rea
of odf omain

PrPrrerei i
rea
region rea
rea
domain
= = rea
of orf egion
of odf omain


Bivariate
Normal
Bivariate
Normal
~ r r alal ,5 , A5 A and
and
or or
~
5 A5
~
r
al
,
A] ,
]
~ r al ] , ] ,

= = ~ ~ r r alal = = = = , ,
= = , w, here
where

5 5
]+ ]
= = = = +

ponential
or or
e eponential

Pr

<

<

Pr < < + +

Unreimbursed
Loss,
Unreimbursed
Loss,
f

i
s
t
e
l
ss
a
rei urse
urse l lss),
ss),
f is t e l ss a
is its te e a a e et (t i (ei erei
t te e = =
+ + = =

, ,
a a = =

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Copyright 2016 Coaching Actuaries. All Rights Reserved. 2

Copyright
2016
Coaching
Actuaries.
All Rights
Reserved. 2
Personal
copies
permitted.
Resale
or distribution
is prohibited.