An insurance contract is (α1, α2), where α1= premium paid in the no accident state, and α2= net payout received in case of accident
Consider two investments X and Y, where X pays $0 and $10 with equal probability and...
2+ 5 + 1 + 2 +2) Consider an insurance market with insurance firms being competitive and risk neutral (Zero expected profits in equilibrium) and a risk averse customer with a von-Neumann Morgenstern utility function . The customer is born with a wealth of $150. There is a probability of an accident p=0.3 in which case the customer will suffer a damage of $50. An insurance contract is , where premium paid in the no accident state, and = net...
b) (2+5 + 1 + 2 +2) Consider an insurance market with insurance firms being competitive and risk neutral (Zero expected profits in equilibrium) and a risk averse customer with a von-Neumann Morgenstern utility function u(x) = x1/3. The customer is born with a wealth of $150. There is a probability of an accident p=0.3 in which case the customer will suffer a damage of $50. An insurance contract is (Q1, Q2), where az = premium paid in the no...
Consider two investments X and Y, where X pays $0 and $10 with equal probability and Y pays 0 with probability 0.75 and $20 with probability 0.25. What investment would an investor choose if her utility function is (i) (ii) u(x) = x2 u(x) = u(x) = 1 -e To = X
a) (3)) Consider two investments X and Y, where X pays $0 and $10 with equal probability and Y pays 0 with probability 0.75 and $20 with probability 0.25. What investment would an investor choose if her utility function is (0) (ii) (ii) u(x) = x2 u(x) = u(x) = 1-e * = X
the question is not incomplete Question 2 (45 pts.) Consider a Rothschild and Stiglitz model of adverse selection in which there are two types of customers (Robusts and Frails). Both types of customers are risk averse in income and have utility function of wealth U (1) = 1-exp (-soo). All customers have initial income of $1,000. During any given year, the probability of becoming ill for the Robust and Frail customers are given by Pr F 0.2, and pR 0.1....
2. The probability that James is involved in a car accident is 0.3 and the probability that he is not in a car accident is 0.7. The value of his car is $10000, which is lost if he is in an accident. That is, his wealth is $20000 if he does not have an accident and $10000 if he is involved in an accident. James utility function is U(M)-10-1000/Mo, where M is his wealth. (a) What are the expected value...
Suppose the function u(x) = x0.5 , where x is consumption, represents your preference over gambles using an expected utility function. You have a probability 0.1 of getting consumption xB (bad state) and a probability 0.9 of getting xG (good state). An insurance company allows you to choose an insurance contract (b, p), where b is the insurance benefit the company pays you if the bad state occurs and p is the insurance premium you pay the company regardless of...
Suppose there are a two different types of travellers. The safe ones and the unsafe ones. No matter the type of travellers, they all own $20,000 in the good state of the world. If they get into an accident while travelling they lose $15,000. The utility of a traveller is u(y)= y^(1/2) . Consider the competitive market for travel insurance in answering the following questions. Whenever I refer to the state contingent space, put money in the good state on...
Suppose the function u(x) = x0.5 , where x is consumption, represents your preference over gambles using an expected utility function. You have a probability 0.1 of getting consumption xB (bad state) and a probability 0.9 of getting xG (good state). An insurance company allows you to choose an insurance contract (b, p), where b is the insurance benefit the company pays you if the bad state occurs and p is the insurance premium you pay the company regardless of...
Case 14-6 Making Connections Social Konnections Inc. (SKI or the “Company”) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2010. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games. Last year, substantially all of SKI’s revenue came from advertisers who market their products and...