# 4.3.Butsic

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1. Criterias for an effective risk based capital method
• Same for all classes of insd, types of insr, types of claimant
• Objectively measured; based on financial data and mathematical formula
• Discriminate btwn quantifiable measures of risk
2. Expected PH Deficit
• EPD = DL = ∑X>A(X - A)p(x)
• EPD = DL = ∫(X - A)p(x)dx
• EPD ratio = dL = DL/E(loss) = DL/L
3. EPD under Normal distribution
• c = ratio of capital to exp loss (A = (1 + c)L)
• cA = C/A
• k = coefficient of variation for liabilities
• kA = coefficient of variation for assets
• dL = DL/L = kφ(-c/k) - cΦ(-c/k)
• dA = DA/L = 1/(1 - cA)[kAφ(-cA/kA) - cAΦ(-cA/kA)]
4. EPD under Lognormal distribution
• dL = Φ(a) - (1 - c)Φ(a - k)
• dA = Φ(b) - Φ(b - kA)/(1 - cA)
• where a = k/2 - ln(1 + c)/k
• and b = kA/2 + ln(1 - cA)/kA
 Author: Exam9 ID: 66568 Card Set: 4.3.Butsic Updated: 2011-02-16 00:39:59 Tags: Butsic Folders: Description: Butsic Show Answers: